edX - TXT1x Data
-----BEGIN PRIVACY-ENHANCED MESSAGE-----1Proc-Type: 2001,MIC-CLEAR2Originator-Name: [email protected]3Originator-Key-Asymmetric:4MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen5TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB6MIC-Info: RSA-MD5,RSA,7SrjZlquMEQo8a90p5Q4ZYSbUGKTSEC/VfkJ4IYQqKRss0nT0wXn1lg4dGLEsS+8U8hZpp0PdRMWfhFhg4aPJ1nA==910<SEC-DOCUMENT>0000897101-05-000696.txt : 2005031111<SEC-HEADER>0000897101-05-000696.hdr.sgml : 2005031112<ACCEPTANCE-DATETIME>2005031115195913ACCESSION NUMBER: 0000897101-05-00069614CONFORMED SUBMISSION TYPE: 10-K15PUBLIC DOCUMENT COUNT: 1216CONFORMED PERIOD OF REPORT: 2004123117FILED AS OF DATE: 2005031118DATE AS OF CHANGE: 200503111920FILER:2122COMPANY DATA:23COMPANY CONFORMED NAME: ST JUDE MEDICAL INC24CENTRAL INDEX KEY: 000020307725STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845]26IRS NUMBER: 41127689127STATE OF INCORPORATION: MN28FISCAL YEAR END: 12312930FILING VALUES:31FORM TYPE: 10-K32SEC ACT: 1934 Act33SEC FILE NUMBER: 001-1244134FILM NUMBER: 056753403536BUSINESS ADDRESS:37STREET 1: ONE LILLEHEI PLAZA38CITY: ST PAUL39STATE: MN40ZIP: 5511741BUSINESS PHONE: 65148320004243MAIL ADDRESS:44STREET 1: ONE LILLEHEI PLAZA45CITY: ST PAUL46STATE: MN47ZIP: 5511748</SEC-HEADER>49<DOCUMENT>50<TYPE>10-K51<SEQUENCE>152<FILENAME>stjude051052_10k.htm53<TEXT>5455<HTML>56<HEAD>57<TITLE>St. Jude Medical, Inc. Form 10-K dated December 31, 2004 </TITLE>58</HEAD>59<BODY>6061<HR ALIGN=LEFT WIDTH=100% SIZE=4 NOSHADE color=black>62<HR ALIGN=LEFT WIDTH=100% SIZE=1 NOSHADE color=black style=margin-top:-8pt;>6364<!-- MARKER FORMAT-SHEET="Head Major Center Bold 1" FSL="Default" -->65<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3>UNITED STATES SECURITIES AND EXCHANGE COMMISSION66<BR>WASHINGTON, D. C. 20549 </FONT></H1>6768<!-- MARKER FORMAT-SHEET="Head Major Center Bold 1" FSL="Default" -->69<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3>FORM 10-K </FONT></H1>7071<div align=center>7273<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->74<TABLE WIDTH=650 CELLPADDING=0 CELLSPACING=0>75<TR VALIGN=TOP>76<TD WIDTH=5%> <FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B> X </B></U> </FONT> </TD>77<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>78<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>ANNUAL79REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES <BR>EXCHANGE ACT OF 193480FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004 OR</B> </FONT> </TD>81</TR>82</TABLE>83<BR>8485<!-- MARKER FORMAT-SHEET="Para Hang" FSL="Default" -->86<TABLE WIDTH=650 CELLPADDING=0 CELLSPACING=0>87<TR VALIGN=TOP>88<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B> </B></U> </FONT> </TD>89<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>90<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES91<BR>EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________.</B> </FONT> </TD>92</TR>93</TABLE>94<BR>95</div>96<!-- MARKER FORMAT-SHEET="Head Minor Center Bold" FSL="Default" -->97<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Commission File No. 0-867298<BR>______________________________ </FONT></H1>99100<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->101<p ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="4">ST. JUDE MEDICAL, INC.<BR> </FONT>102<FONT FACE="Times New Roman, Times, Serif" SIZE="2">(Exact name of Registrant as specified in its charter) </FONT> </p>103104<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600 align=center>105<TR VALIGN=Bottom>106<TD WIDTH="50%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Minnesota</B> </FONT></TD>107<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>108<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>109<TD WIDTH="50%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>41-1276891</B> </FONT></TD>110<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>111<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>112<TR VALIGN=top>113<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(State or other jurisdiction of <BR>incorporation or organization)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>114<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(I.R.S. Employer Identification No.)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>115</TABLE>116<BR>117118<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->119<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>One Lillehei Plaza120<BR>St. Paul, Minnesota 55117 </B>121<BR>(Address of principal executive offices, including zip code) </FONT></P>122123<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->124<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>(651) 483-2000</B>125<BR>(Registrant’s telephone number, including area code)126<BR>______________________________ </FONT> </P>127128<!-- MARKER FORMAT-SHEET="Head Minor Center Bold" FSL="Default" -->129<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: </FONT></H1>130131<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=600 align=center>132<TR VALIGN=Bottom>133<TD WIDTH="50%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (Title of class)</FONT></TD>134<TD WIDTH="1%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>135<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>136<TD WIDTH="50%" ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(Name of exchange on which registered)</FONT></TD>137<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>138<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>139<tr><td> </td></tr>140<TR VALIGN=Bottom>141<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Common Stock ($.10 par value)</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>142<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>New York Stock Exchange</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>143<TR VALIGN=Bottom>144<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B> Preferred Stock Purchase Rights</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>145<TD ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>New York Stock Exchange</B> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>146</TABLE>147<BR>148149<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->150<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: </B>NONE151<BR>______________________________ </FONT> </P>152153<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->154<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark whether the Registrant: (1) has filed all reports155required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months; and (2) has156been subject to such filing requirements for the past 90 days. Yes <U> X </U> No <U> </U></FONT></P>157158<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->159<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark if disclosure of delinquent filers pursuant to160Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s161knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any162amendment to this Form 10-K. [_] </FONT></P>163164<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->165<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate by check mark whether the Registrant is an accelerated filer (as166defined in Rule 12b-2 of the Act). Yes <U> X </U> No <U> </U></FONT></P>167168<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->169<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The aggregate market value of the voting and non-voting stock held by170non-affiliates of the Registrant was approximately $13.1 billion at July 2, 2004 (the last trading day of the Registrant’s171most recently completed second fiscal quarter), when the closing sale price of such stock, as reported on the New York Stock172Exchange, was $36.96 per share. </FONT></P>173174<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->175<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Registrant had 360,900,825 shares of its $0.10 par value Common Stock176outstanding as of March 2, 2005. </FONT></P>177178<!-- MARKER FORMAT-SHEET="Head Minor Center Bold" FSL="Default" -->179<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>DOCUMENTS INCORPORATED BY REFERENCE </FONT></H1>180181<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->182<P style=margin-top:-12pt;><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Portions of the Company’s Annual Report to183Shareholders for the fiscal year ended December 31, 2004, are incorporated by reference into Parts I and II. Portions of the184Company’s definitive proxy statement for the Company’s 2005 Annual Meeting of Shareholders, are incorporated by185reference into Part III. </FONT></P>186187<HR ALIGN=LEFT WIDTH=100% SIZE=1 NOSHADE color=black>188<HR ALIGN=LEFT WIDTH=100% SIZE=4 NOSHADE color=black style=margin-top:-8pt;>189190<HR SIZE=3 COLOR=GRAY NOSHADE>191<!-- *************************************************************************** -->192<!-- MARKER PAGE="sheet: 0; page: 0" -->193<BR><BR>194195<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3>TABLE OF CONTENTS </FONT></H1>196197198<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="600" ALIGN=CENTER>199<TR>200<TH WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>ITEM</U> </FONT></TH>201<TH WIDTH="80%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>DESCRIPTION</U> </FONT></TH>202<TH WIDTH="10%"><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>PAGE</U> </FONT></TH></TR>203<tr><TD WIDTH="10%" STYLE="padding-left:24pt;"> </td></tr>204<TR vAlign=bottom>205<TD COLSPAN="3" ALIGN="center" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>PART I</FONT></TD>206</TR>207<tr><TD WIDTH="10%" STYLE="padding-left:24pt;"> </td></tr>208<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">209<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>1.</FONT></TD>210<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Business</FONT></TD>211<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>1 </FONT></TD></TR>212<TR vAlign=bottom>213<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>2.</FONT></TD>214<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Properties</FONT></TD>215<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>15 </FONT></TD></TR>216<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">217<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>3.</FONT></TD>218<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Legal Proceedings</FONT></TD>219<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>15 </FONT></TD></TR>220<TR vAlign=bottom>221<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>4.</FONT></TD>222<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Submission of Matters to a Vote of Security Holders</FONT></TD>223<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>21 </FONT></TD></TR>224<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">225<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>4A.</FONT></TD>226<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Executive Officers of the Registrant</FONT></TD>227<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>22 </FONT></TD></TR>228<tr><TD WIDTH="10%" STYLE="padding-left:24pt;"> </td></tr>229<TR vAlign=bottom>230<TD COLSPAN="3" ALIGN="center" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>PART II</FONT></TD></TR>231<tr><TD WIDTH="10%" STYLE="padding-left:24pt;"> </td></tr>232<TR vAlign=bottom>233<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>5.<BR></FONT></TD>234<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Market for Registrant’s Common Equity, Related Stockholder Matters</FONT></TD></TR>235<TR vAlign=bottom>236<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2> </FONT></TD>237<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2> and Issuer Purchases of Equity Securities</FONT></TD>238<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>25 </FONT></TD></TR>239<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">240<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>6.</FONT></TD>241<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Selected Financial Data</FONT></TD>242<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>25 </FONT></TD></TR>243<TR vAlign=bottom>244<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>7.<BR><BR></FONT></TD>245<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Management’s Discussion and Analysis of Financial Condition and<BR> Results of Operations</FONT></TD>246<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>25 </FONT></TD></TR>247<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">248<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>7A.</FONT></TD>249<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Quantitative and Qualitative Disclosures About Market Risk</FONT></TD>250<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>25 </FONT></TD></TR>251<TR vAlign=bottom>252<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>8.</FONT></TD>253<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Financial Statements and Supplementary Data</FONT></TD>254<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>25 </FONT></TD></TR>255<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">256<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>9.<BR><BR></FONT></TD>257<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Changes in and Disagreements with Accountants on Accounting <BR> and Financial Disclosure</FONT></TD>258<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>26 </FONT></TD></TR>259<TR vAlign=bottom>260<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>9A.</FONT></TD>261<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Controls and Procedures</FONT></TD>262<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>26 </FONT></TD></TR>263<TR vAlign=bottom>264<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>9B.</FONT></TD>265<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Other Information</FONT></TD>266<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>26 </FONT></TD></TR>267<tr><TD WIDTH="10%" STYLE="padding-left:24pt;"> </td></tr>268<TR vAlign=bottom>269<TD COLSPAN="3" ALIGN="center" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>PART III</FONT></TD></TR>270<tr><TD WIDTH="10%" STYLE="padding-left:24pt;"> </td></tr>271<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">272<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>10.</FONT></TD>273<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Directors and Executive Officers of the Registrant</FONT></TD>274<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>26 </FONT></TD></TR>275<TR vAlign=bottom>276<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>11.</FONT></TD>277<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Executive Compensation</FONT></TD>278<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>27 </FONT></TD></TR>279<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">280<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>12.<BR><BR></FONT></TD>281<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Security Ownership of Certain Beneficial Owners and Management <BR> and Related Stockholder Matters</FONT></TD>282<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>27 </FONT></TD></TR>283<TR vAlign=bottom>284<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>13.</FONT></TD>285<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Certain Relationships and Related Transactions</FONT></TD>286<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>27 </FONT></TD></TR>287<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">288<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>14.</FONT></TD>289<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Principal Accountant Fees and Services</FONT></TD>290<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>27 </FONT></TD></TR>291<tr><TD WIDTH="10%" STYLE="padding-left:24pt;"> </td></tr>292<TR vAlign=bottom>293<TD COLSPAN="3" ALIGN="center" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>294PART IV</FONT></TD></TR>295<tr><TD WIDTH="10%" STYLE="padding-left:24pt;"> </td></tr>296<TR vAlign=bottom>297<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2>15.</FONT></TD>298<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Exhibits and Financial Statement Schedules </FONT></TD>299<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>28 </FONT></TD></TR>300<tr><TD WIDTH="10%" STYLE="padding-left:24pt;"> </td></tr>301<TR VALIGN="BOTTOM" BGCOLOR="#CCEEFF">302<TD ALIGN="left" WIDTH="10%" STYLE="padding-left:24pt;"><FONT face="Times New Roman, Times, Serif" size=2> </FONT></TD>303<TD ALIGN="left" WIDTH="80%"><FONT face="Times New Roman, Times, Serif" size=2>Signatures</FONT></TD>304<TD ALIGN="right" WIDTH="10%"><FONT face="Times New Roman, Times, Serif" size=2>34 </FONT></TD></TR>305</TABLE>306<BR>307308309<BR><BR><BR>310<HR SIZE=3 COLOR=GRAY NOSHADE>311<!-- *************************************************************************** -->312<!-- MARKER PAGE="sheet: 0; page: 0" -->313<BR><BR>314315316<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->317<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART I </FONT></H1>318319<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->320<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 1. BUSINESS </FONT></H1>321322323<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->324<P><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>General</B>325<BR>St. Jude Medical, Inc., together with its subsidiaries (collectively St. Jude, St. Jude Medical or the Company) develops,326manufactures and distributes cardiovascular medical devices for the global cardiac rhythm management (CRM), cardiac surgery (CS)327and cardiology and vascular access (C/VA) therapy areas. The Company’s principal products in each of these therapy areas are328as follows: </FONT> </P>329330<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->331<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>CRM</I> </FONT> </P>332333<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 1" FSL="Default" -->334<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>335<TR VALIGN=TOP>336<TD ALIGN=RIGHT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>337<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>338<TD WIDTH=94%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>bradycardia pacemaker systems (pacemakers), </FONT></P></TD>339</TR>340</TABLE>341342<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 1" FSL="Default" -->343<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>344<TR VALIGN=TOP>345<TD ALIGN=RIGHT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>346<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>347<TD WIDTH=94%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>tachycardia implantable cardioverter defibrillator systems (ICDs), and </FONT></P></TD>348</TR>349</TABLE>350351<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 1" FSL="Default" -->352<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>353<TR VALIGN=TOP>354<TD ALIGN=RIGHT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>355<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>356<TD WIDTH=94%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>electrophysiology (EP) catheters </FONT></P></TD>357</TR>358</TABLE>359<BR>360361<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->362<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>CS</I> </FONT> </P>363364<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 1" FSL="Default" -->365<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>366<TR VALIGN=TOP>367<TD ALIGN=RIGHT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>368<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>369<TD WIDTH=94%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>mechanical and tissue heart valves, </FONT></P></TD>370</TR>371</TABLE>372373<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 1" FSL="Default" -->374<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>375<TR VALIGN=TOP>376<TD ALIGN=RIGHT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>377<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>378<TD WIDTH=94%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>valve repair products, and </FONT></P></TD>379</TR>380</TABLE>381382<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 1" FSL="Default" -->383<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>384<TR VALIGN=TOP>385<TD ALIGN=RIGHT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>386<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>387<TD WIDTH=94%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>epicardial ablation systems </FONT></P></TD>388</TR>389</TABLE>390<BR>391392<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->393<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>C/VA</I> </FONT> </P>394395<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 1" FSL="Default" -->396<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>397<TR VALIGN=TOP>398<TD ALIGN=RIGHT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>399<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>400<TD WIDTH=94%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>vascular closure devices, </FONT></P></TD>401</TR>402</TABLE>403404<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 1" FSL="Default" -->405<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>406<TR VALIGN=TOP>407<TD ALIGN=RIGHT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>408<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>409<TD WIDTH=94%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>angiography catheters, </FONT></P></TD>410</TR>411</TABLE>412413<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 1" FSL="Default" -->414<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>415<TR VALIGN=TOP>416<TD ALIGN=RIGHT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>417<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>418<TD WIDTH=94%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>guidewires, and </FONT></P></TD>419</TR>420</TABLE>421422<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 1" FSL="Default" -->423<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>424<TR VALIGN=TOP>425<TD ALIGN=RIGHT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>426<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>427<TD WIDTH=94%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>hemostasis introducers </FONT></P></TD>428</TR>429</TABLE>430<BR>431432<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->433<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company markets and sells its products through both a direct sales force434and independent distributors. The principal geographic markets for the Company’s products are the United States, Europe and435Japan. St. Jude also sells its products in Canada, Latin America, Australia, New Zealand and the Asia-Pacific region. </FONT></P>436437<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->438<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Acquisitions</B>439<BR>On February 15, 2005, the Company announced that it signed a definitive agreement to acquire the business of Velocimed, for440$82.5 million less approximately $8.5 million of cash expected to be on hand at Velocimed at closing plus additional contingent441payments tied to revenues in excess of minimum future targets, and a milestone payment upon U.S. Food and Drug Administration442(FDA) approval of the Premere™ patent foramen ovale closure system. Velocimed is a privately held company which develops and443manufactures specialty interventional cardiology devices. </FONT></P>444445<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->446<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On January 13, 2005, the Company completed its acquisition of Endocardial447Solutions, Inc. (ESI) for $280.5 million, which includes closing costs less $8.2 million of cash acquired. ESI was publicly traded448on the NASDAQ market under the ticker symbol ECSI. ESI develops, manufactures, and markets the EnSite® System used for the449navigation and localization of diagnostic and therapeutic catheters used by physician specialists to diagnose and treat cardiac450rhythm disorders. </FONT></P>451452453<BR><BR>454<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1 </FONT></P>455<HR SIZE=3 COLOR=GRAY NOSHADE>456<!-- *************************************************************************** -->457<!-- MARKER PAGE="sheet: 0; page: 0" -->458<BR><BR>459460461<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->462<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On October 7, 2004, the Company completed its acquisition of the remaining463capital stock of Irvine Biomedical, Inc. (IBI), a privately held company that develops and sells electrophysiology (EP) catheter464products used by physician specialists to diagnose and treat cardiac rhythm disorders. In April 2003, the Company acquired a465minority investment of 14% in IBI through the Company’s acquisition of Getz Bros. Co., Ltd. (Getz Japan). The Company paid466approximately $50.6 million to acquire the remaining 86% of IBI capital stock it did not already own. </FONT></P>467468<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->469<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On June 8, 2004, the Company completed its acquisition of the remaining470capital stock of Epicor Medical, Inc. (Epicor), a company focused on developing products which use High Intensity Focused471Ultrasound (HIFU) to ablate cardiac tissue. In May 2003, the Company made an initial $15.0 million minority investment in Epicor472and acquired an option to purchase the remaining ownership of Epicor prior to June 30, 2004 for $185.0 million. Pursuant to the473option, the Company paid $185.0 million in cash to acquire the remaining outstanding capital stock of Epicor on June 8, 2004. Net474consideration paid for the total acquisition was $198.0 million, which includes closing costs less $2.4 million of cash acquired.475</FONT></P>476477<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->478<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On April 1, 2003, we completed the acquisition of Getz Japan, a distributor479of medical technology products in Japan and our largest volume distributor in Japan. We paid 26.9 billion Japanese Yen in cash to480acquire 100% of the outstanding common stock of Getz Japan. Net consideration paid was $219.2 million, which includes closing481costs less $12.0 million of cash acquired. We also acquired the net assets of Getz Bros. & Co. (Aust.) Pty. Limited and Medtel482Pty. Limited (collectively referred to as Getz Australia) related to the distribution of our products in Australia for $6.2483million in cash, including closing costs. </FONT></P>484485<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->486<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Minority Investment</B>487<BR>On January 12, 2005, we made an initial equity investment of $12.5 million pursuant to the Preferred Stock Purchase and488Acquisition Option Agreement (the Purchase and Option Agreement) and an Agreement and Plan of Merger (the Merger Agreement),489entered into with ProRhythm, Inc., (ProRhythm). The initial investment equated to a 9% ownership interest and is accounted for490under the cost method. ProRhythm is developing a high intensity focused ultrasound (HIFU) catheter-based ablation system for the491treatment of atrial fibrillation. Under the terms of the Purchase and Option Agreement, we have the option to make, or ProRhythm492can require an additional $12.5 million equity investment through January 31, 2006, upon completion of specific clinical and493regulatory milestones. </FONT></P>494495<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->496<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Purchase and Option Agreement also provides that we have the exclusive497right, but not the obligation, through March 31, 2007, to acquire ProRhythm for $125 million in cash consideration payable to the498ProRhythm stockholders (other than us) pursuant to the terms and conditions set forth in the Merger Agreement (the Merger), with499additional cash consideration payable to the ProRhythm stockholders (other than us) after the consummation of the Merger, if500ProRhythm achieves certain performance-related milestones. </FONT></P>501502503<BR><BR><BR><BR><BR><BR><BR>504<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2 </FONT></P>505<HR SIZE=3 COLOR=GRAY NOSHADE>506<!-- *************************************************************************** -->507<!-- MARKER PAGE="sheet: 0; page: 0" -->508<BR><BR>509510511<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->512<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Reportable Segments</B>513<BR>The Company has two reportable segments, the Cardiac Rhythm Management/Cardiac Surgery (CRM/CS) segment and the Daig segment,514which focus on the development and manufacture of the Company’s products. The primary products produced by each segment are:515CRM/CS — pacemaker and implantable cardioverter defibrillator (ICD) systems, mechanical and tissue heart valves and other516cardiac surgery products; Daig — electrophysiology catheters, vascular closure devices and other cardiology and vascular517access products. </FONT></P>518519<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->520<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company’s reportable segments include end customer revenues from the521sale of products they each develop and manufacture. The costs included in each of the reportable segments’ operating results522include the direct costs of the products sold to end customers and operating expenses managed by each of the segments. Certain523costs of goods sold and operating expenses managed by the Company’s selling and corporate functions are not included in524segment operating profit. Consequently, segment operating profit presented below is not representative of the operating profit of525the Company’s products in these segments. </FONT></P>526527528<BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR>529<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3 </FONT></P>530<HR SIZE=3 COLOR=GRAY NOSHADE>531<!-- *************************************************************************** -->532<!-- MARKER PAGE="sheet: 0; page: 0" -->533<BR><BR>534535536537<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->538<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following table presents certain financial information about the539Company’s reportable segments (in thousands): </FONT></P>540541542<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=650>543<TR VALIGN=Bottom>544<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>545<TD COLSPAN=2 align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>CRM/CS</I> </FONT></TD><TH></TH>546<TD COLSPAN=2 align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Daig</I> </FONT></TD><TH></TH>547<TD COLSPAN=2 align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Other</I> </FONT></TD><TH></TH>548<TD COLSPAN=2 align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Total</I> </FONT></TD></TR>549<TR>550<TD COLSPAN=15><HR NOSHADE COLOR=#000000 SIZE=2></TD></TR>551<TR VALIGN=Bottom>552<TD WIDTH=36% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Fiscal Year Ended December 31, 2004</I> </FONT></TD>553<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>554<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>555<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>556<TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>557<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>558<TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>559<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>560<TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>561<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>562<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>563<TR VALIGN=Bottom>564<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Net sales</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>565<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,729,862</FONT></TD>566<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>567<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 470,720</FONT></TD>568<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>569<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 93,591</FONT></TD>570<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>571<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,294,173</FONT></TD>572<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>573<TR VALIGN=Bottom>574<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Operating profit <SUP>(a)</SUP></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>575<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,015,621</FONT></TD>576<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>577<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>254,270</FONT></TD>578<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>579<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(733,933</FONT></TD>580<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>581<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>535,958</FONT></TD>582<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>583<TR VALIGN=Bottom>584<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Total assets <SUP>(b)(c)</SUP></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>585<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>877,448</FONT></TD>586<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>587<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>156,972</FONT></TD>588<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>589<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,196,327</FONT></TD>590<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>591<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3,230,747</FONT></TD>592<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>593<TR>594<TD COLSPAN=15><HR NOSHADE COLOR=#000000 SIZE=1></TD></TR>595<TR><TD> </TD></TR>596<TR VALIGN=Bottom>597<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Fiscal Year Ended December 31, 2003</I> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD></TR>598<TR VALIGN=Bottom>599<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Net sales</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>600<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,499,425</FONT></TD>601<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>602<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 366,433</FONT></TD>603<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>604<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 66,656</FONT></TD>605<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>606<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,932,514</FONT></TD>607<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>608<TR VALIGN=Bottom>609<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Operating profit <SUP>(a)</SUP></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>610<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>873,904</FONT></TD>611<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>612<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>202,007</FONT></TD>613<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>614<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(619,966</FONT></TD>615<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>616<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>455,945</FONT></TD>617<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>618<TR VALIGN=Bottom>619<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Total assets <SUP>(b)(c)</SUP></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>620<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>639,724</FONT></TD>621<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>622<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>147,270</FONT></TD>623<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>624<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,766,488</FONT></TD>625<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>626<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,553,482</FONT></TD>627<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>628<TR>629<TD COLSPAN=15><HR NOSHADE COLOR=#000000 SIZE=1></TD></TR>630<TR><TD> </TD></TR>631<TR VALIGN=Bottom>632<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Fiscal Year Ended December 31, 2002</I> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD></TR>633<TR VALIGN=Bottom>634<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Net sales</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>635<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,305,750</FONT></TD>636<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>637<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 284,179</FONT></TD>638<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>639<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> —</FONT></TD>640<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>641<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,589,929</FONT></TD>642<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>643<TR VALIGN=Bottom>644<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Operating profit <SUP>(a)</SUP></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>645<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>713,341</FONT></TD>646<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>647<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>149,592</FONT></TD>648<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>649<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(492,978</FONT></TD>650<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>651<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>369,955</FONT></TD>652<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>653<TR VALIGN=Bottom>654<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Total assets <SUP>(b)(c)</SUP></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>655<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>723,414</FONT></TD>656<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>657<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>134,610</FONT></TD>658<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>659<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,093,355</FONT></TD>660<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>661<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,951,379</FONT></TD>662<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>663<TR>664<TD COLSPAN=15><HR NOSHADE COLOR=#000000 SIZE=1></TD></TR>665</TABLE>666<BR>667668<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->669<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>670<TR VALIGN=TOP>671<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>672<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a) </FONT></TD>673<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>674<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other operating profit includes certain costs of goods sold and675operating expense managed by the Company’s selling and corporate functions. In fiscal year 2004, the Company recorded $40.9676million of special charges that are included in the Other operating profit. Additionally, the Company recorded $9.1 million of677purchased in-process research and development in conjunction with the IBI acquisition that is included in the Daig operating678profit. </FONT></TD>679</TR>680</TABLE>681<BR>682683<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->684<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>685<TR VALIGN=TOP>686<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>687<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b) </FONT></TD>688<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>689<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other total assets include the assets managed by the690Company’s selling and corporate functions, including end customer receivables, inventory, corporate cash and equivalents and691deferred income taxes. </FONT></TD>692</TR>693</TABLE>694<BR>695696<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->697<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>698<TR VALIGN=TOP>699<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>700<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(c) </FONT></TD>701<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>702<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company does not compile expenditures for long-lived assets by703segment and, therefore, has not included this information as it is impracticable to do so. </FONT></TD>704</TR>705</TABLE>706<BR>707708<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->709<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net sales by class of similar products were as follows (in thousands):710</FONT></P>711712713714<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=650>715<TR VALIGN=Bottom>716<TD COLSPAN=3 align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Net Sales</I> </FONT> </TD>717<TD COLSPAN=2 align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>2004</I> </FONT> </TD><TH></TH>718<TD COLSPAN=2 align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>2003</I> </FONT> </TD><TH></TH>719<TD COLSPAN=2 align=right><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>2002</I> </FONT> </TD></TR>720<TR>721<TD COLSPAN=12><HR NOSHADE COLOR=#000000 SIZE=2></TD></TR>722<TR VALIGN=Bottom>723<TD WIDTH=49% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cardiac rhythm management</FONT></TD>724<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>725<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>726<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,630,610</FONT></TD>727<TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>728<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,365,212</FONT></TD>729<TD WIDTH=6% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>730<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,147,489</FONT></TD>731<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>732<TR VALIGN=Bottom>733<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cardiac surgery</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>734<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>274,979</FONT></TD>735<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>736<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>270,933</FONT></TD>737<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>738<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>250,957</FONT></TD>739<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>740<TR VALIGN=Bottom>741<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Cardiology and vascular access</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>742<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>388,584</FONT></TD>743<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>744<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>296,369</FONT></TD>745<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>746<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>191,483</FONT></TD>747<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>748<TR>749<TD COLSPAN=12><HR NOSHADE COLOR=#000000 SIZE=1></TD></TR>750<TR VALIGN=Bottom>751<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>752<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,294,173</FONT></TD>753<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>754<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,932,514</FONT></TD>755<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>756<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,589,929</FONT></TD>757<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>758<TR>759<TD COLSPAN=12><HR NOSHADE COLOR=#000000 SIZE=1></TD></TR>760</TABLE>761<BR>762763<BR><BR><BR><BR><BR><BR><BR>764<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4 </FONT></P>765<HR SIZE=3 COLOR=GRAY NOSHADE>766<!-- *************************************************************************** -->767<!-- MARKER PAGE="sheet: 0; page: 0" -->768<BR><BR>769770771772<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->773<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following tables present certain geographical information (in thousands):774</FONT></P>775776777<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=600>778<TR VALIGN=Bottom>779<TD WIDTH=41% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Net Sales (a)</I> </FONT></TD>780<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>781<TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>782<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>2004</I> </FONT></TD>783<TD WIDTH=10% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>784<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>2003</I> </FONT></TD>785<TD WIDTH=10% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>786<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=10% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>2002</I> </FONT></TD>787<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>788<TR>789<TD COLSPAN=12><HR NOSHADE COLOR=#000000 SIZE=2></TD></TR>790<TR VALIGN=Bottom>791<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> United States</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>792<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,264,756</FONT></TD>793<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>794<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,129,055</FONT></TD>795<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>796<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,042,766</FONT></TD>797<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>798<TR VALIGN=Bottom>799<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> International</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>800<TR VALIGN=Bottom>801<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Europe</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>802<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>577,058</FONT></TD>803<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>804<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>465,369</FONT></TD>805<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>806<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>347,936</FONT></TD>807<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>808<TR VALIGN=Bottom>809<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Japan</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>810<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>267,723</FONT></TD>811<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>812<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>207,431</FONT></TD>813<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>814<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>95,813</FONT></TD>815<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>816<TR VALIGN=Bottom>817<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> Other <I>(b)</I> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>818<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>184,636</FONT></TD>819<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>820<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>130,659</FONT></TD>821<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>822<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>103,414</FONT></TD>823<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>824<TR>825<TD COLSPAN=12><HR NOSHADE COLOR=#000000 SIZE=1></TD></TR>826<TR VALIGN=Bottom>827<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Total International</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>828<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,029,417</FONT></TD>829<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>830<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>803,459</FONT></TD>831<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>832<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>547,163</FONT></TD>833<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>834<TR>835<TD COLSPAN=12><HR NOSHADE COLOR=#000000 SIZE=1></TD></TR>836<TR VALIGN=Bottom>837<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>838<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2,294,173</FONT></TD>839<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>840<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,932,514</FONT></TD>841<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>842<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,589,929</FONT></TD>843<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>844<TR>845<TD COLSPAN=12><HR NOSHADE COLOR=#000000 SIZE=2></TD></TR>846<TR><TD> </TD></TR>847<TR VALIGN=Bottom>848<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Long-Lived Assets (c)</I> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD>849<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>2004</I> </FONT></TD>850<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>851<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>2003</I> </FONT></TD>852<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>853<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I> </I> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>2002</I> </FONT></TD>854<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>855<TR>856<TD COLSPAN=12><HR NOSHADE COLOR=#000000 SIZE=2></TD></TR>857<TR VALIGN=Bottom>858<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> United States</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>859<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,042,690</FONT></TD>860<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>861<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 744,445</FONT></TD>862<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>863<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 674,119</FONT></TD>864<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>865<TR VALIGN=Bottom>866<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> International</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>867<TR VALIGN=Bottom>868<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Europe</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>869<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>102,172</FONT></TD>870<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>871<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>96,520</FONT></TD>872<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>873<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>88,194</FONT></TD>874<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>875<TR VALIGN=Bottom>876<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Japan</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>877<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>163,736</FONT></TD>878<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>879<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>152,772</FONT></TD>880<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>881<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>267</FONT></TD>882<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>883<TR VALIGN=Bottom>884<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Other</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>885<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>74,356</FONT></TD>886<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>887<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>70,020</FONT></TD>888<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>889<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>62,213</FONT></TD>890<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>891<TR>892<TD COLSPAN=12><HR NOSHADE COLOR=#000000 SIZE=1></TD></TR>893<TR VALIGN=Bottom>894<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> Total International</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>895<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>340,264</FONT></TD>896<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>897<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>319,312</FONT></TD>898<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>899<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>150,674</FONT></TD>900<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>901<TR>902<TD COLSPAN=12><HR NOSHADE COLOR=#000000 SIZE=1></TD></TR>903<TR VALIGN=Bottom>904<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>905<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,382,954</FONT></TD>906<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>907<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,063,757</FONT></TD>908<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>909<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 824,793</FONT></TD>910<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>911<TR>912<TD COLSPAN=12><HR NOSHADE COLOR=#000000 SIZE=2></TD></TR>913</TABLE>914<BR>915916<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->917<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a) Net sales are attributed to geographies based on918location of the customer.919<BR>(b) No one geographic market is greater than 5% of consolidated net sales.920<BR>(c) Long-lived assets exclude deferred income taxes. </FONT></P>921922<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->923<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>St. Jude was incorporated in Minnesota in 1976. </FONT></P>924925<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->926<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Principal Products</B>927<BR><I>Cardiac Rhythm Management:</I> The Company’s pacemaker systems treat patients with hearts that beat928too slowly, a condition known as bradycardia. Typically implanted pectorally, just below the collarbone, pacemakers monitor the929heart’s rate and, when necessary, deliver low-level electrical impulses that stimulate an appropriate heartbeat. The930pacemaker is connected to the heart by one to three leads that carry the electrical impulses to the heart and information from the931heart back to the pacemaker. An external programmer enables the physician to retrieve diagnostic information from the pacemaker932and reprogram the pacemaker in accordance with the patient’s changing needs. Single-chamber pacemakers sense and stimulate933only one chamber of the heart (atrium or ventricle), while dual-chamber devices can sense and pace in both the upper atrium and934lower ventricle chambers. Bi-ventricle pacemakers can sense and pace in three chambers: (atrium and both ventricle chambers).935</FONT></P>936937<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->938<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>St. Jude Medical’s current pacing products include the new Team939ADx® pacemakers, a group comprised of the Identity® ADx, Integrity® ADx, and Verity™ ADx families of devices. The940Identity® DR and Identity® XL DR devices were approved by the FDA in March 2003, with the rest of the Team ADx™941devices receiving FDA approval in May 2003. The Team ADx devices received European CE Mark in August 2003. The Identity® ADx942family models maintain the therapeutic advancements of previous St. Jude Medical pacemakers, including the AF Suppression™943algorithm and the <I>Beat-by-Beat™</I> AutoCapture™ Pacing System. This family offers new Atrial Tachycardia(AT)/Atrial944Fibrillation(AF) arrhythmia diagnostics. The Integrity® ADx devices now offer programmable electrograms. These features are945designed to help physicians better manage pacemaker patients suffering from AF—the world’s most946common cardiac arrhythmia. </FONT></P>947948949<BR><BR>950<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5 </FONT></P>951<HR SIZE=3 COLOR=GRAY NOSHADE>952<!-- *************************************************************************** -->953<!-- MARKER PAGE="sheet: 0; page: 0" -->954<BR><BR>955956957958<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->959<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>St. Jude Medical also offers Identity<SUP>® </SUP>pacemakers with960enhanced electrograms; and Integrity<SUP>® </SUP>and Integrity<SUP>®</SUP> µ (Micro) pacemaker models, built on the961Affinity<SUP>® </SUP>platform with its <I>Beat-by-Beat</I>™ AutoCapture™ Pacing System. Other pacing products962include the Affinity<SUP>® </SUP>pacemakers, and the Entity<SUP>®</SUP> family of pacemakers, containing the963Omnisense<SUP>®</SUP> activity-based sensor. These pacemaker families contain many advanced features and diagnostic964capabilities to optimize cardiac therapy. All are small and physiologic in shape to enhance patient comfort. The Microny<SUP>®965</SUP>II SR+ and Microny<SUP>®</SUP> K, are the world’s smallest pacemakers. The Microny<SUP>® </SUP>SR+ and the966Regency<SUP>® </SUP>pacemaker families are available outside the United States. </FONT></P>967968<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->969<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Identity<SUP>® </SUP>ADx, Integrity<SUP>®</SUP> ADx, Verity™970ADx, Identity<SUP>®</SUP>, Integrity<SUP>®</SUP>, Affinity<SUP>®</SUP>, Entity<SUP>®</SUP> and971Microny<SUP>®</SUP> and Regency<SUP>®</SUP> families of pacemakers all offer the unique <I>Beat-by-Beat</I>™972AutoCapture™ Pacing System. The AutoCapture™ Pacing System enables the pacemaker to monitor every paced beat to verify973that the heart has been stimulated (known as capture), delivers a back-up pulse in the event of noncapture, continuously measures974threshold, and makes adjustments in energy output to match changing patient needs. In addition, the Identity<SUP>® </SUP>ADx,975Integrity® ADx, Identity<SUP>®</SUP> and Integrity<SUP>®</SUP> pacemakers include St. Jude Medical’s AF976Suppression™ Algorithm, a therapy designed to suppress atrial fibrillation. </FONT></P>977978<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->979<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>St. Jude Medical also markets low-voltage device-based ventricular980resynchronization systems (bi-ventricular) designed for the treatment of heart failure and suppression of atrial fibrillation.981 Within the United States, the Company’s pacemakers are the only bi-ventricular pacing devices indicated for use in982patients with chronic atrial fibrillation who have been treated with AV nodal ablation. These device systems include the983Frontier™ and Frontier II™ (FDA approved in August 2004 and CE Mark approved in September 2004) bi-ventricular984stimulation devices, designed to enhance cardiac function by synchronizing the contractions of the heart’s two ventricles,985the Aescula® and QuickSite™ LV pacing leads, and the Alliance™, Seal-Away™ CS and Apeel™ Catheter Delivery986Systems. </FONT></P>987988<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->989<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>St. Jude Medical’s current pacing leads include the Tendril®990SDX (models 1688 and 1488), and Tendril® DX active-fixation lead families, and the IsoFlex® S and Passive Plus®DX991passive-fixation lead families, all available worldwide. All these lead families feature steroid elution, which helps suppress the992body’s inflammatory response to a foreign object. The passive fixation Membrane® EX lead family is also currently993available outside the United States. </FONT></P>994995<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->996<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company’s ICD systems treat patients with hearts that beat997inappropriately fast, a condition known as tachycardia. ICDs monitor the heartbeat and deliver higher energy electrical impulses,998or “shocks,” to terminate ventricular tachycardia (VT) and ventricular fibrillation (VF). In VT, the lower chambers of999the heart contract at an abnormally rapid rate and typically deliver less blood to the body’s tissues and organs. VT can1000progress to VF, in which the heart beats so rapidly and erratically that it can no longer pump blood. Like pacemakers, ICDs are1001typically implanted pectorally, connected to the heart by leads, and programmed non-invasively. </FONT></P>10021003<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1004<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company’s full ICD product offering includes the Epic™+ VR/DR1005and Epic™ VR/DR ICDs, the Atlas®+ VR/DR and Atlas® VR/DR ICDs, Photon® µ (Micro) DR/VR ICD, Photon® DR1006ICD, and Contour® MD ICD. St. Jude Medical received FDA approval and European CE Mark of the Epic™+ VR/DR ICDs in April10072003, and FDA approval and European CE Mark of the Atlas®+ VR/DR ICDs in October 2003. The Epic™ ICD family devices are1008very small ICDs that deliver 30 joules of energy. The Atlas® ICD family devices offer high energy and small size without1009compromising charge times, longevity or feature set flexibility. The Epic™+ DR ICD and the Atlas®+ DR ICD both contain1010St. Jude Medical’s AF Suppression™ algorithm, which is clinically proven to reduce AF burden. </FONT></P>101110121013<BR><BR>1014<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6 </FONT></P>1015<HR SIZE=3 COLOR=GRAY NOSHADE>1016<!-- *************************************************************************** -->1017<!-- MARKER PAGE="sheet: 0; page: 0" -->1018<BR><BR>1019102010211022<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1023<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company’s ICDs are used with the single and dual-shock electrode1024Riata® transvenous defibrillation leads. The Riatai® integrated bipolar single and dual-shock leads were FDA approved and1025launched in April 2004 and received European CE mark in May 2004, making the Riata® ICD leads the most complete ICD lead1026family currently available. The Riata® leads are an advanced family of small-diameter, steroid-eluting, active or passive1027fixation defibrillation leads. </FONT></P>10281029<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1030<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In June 2004, St. Jude Medical received FDA approval for its line of products1031designed to treat heart failure. These products included the Atlas+ HF, the highest output cardiac resynchronization therapy1032device (CRT-D) in the industry at 36 joules delivered and 42 joules stored; the Epic HF, the smallest 30 joule CRT-D available;1033the Aescula Model 1055K left-ventricular lead; and the QuickSite Model 1056K, the most stable left-ventricular lead in the world1034with a less than 1% dislodgment rate. </FONT></P>10351036<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1037<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In November 2004, St. Jude Medical received FDA approval for its Atlas+ HF1038and Epic HF ICDs with the ventricle to ventricle (V-V) timing feature. V-V timing allows the clinician to program the timing1039between the two ventricles to optimize ventricular function and cardiac output, which may further increase the number of1040responders to CRT. Full launch activities began in December 2004. </FONT></P>10411042<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1043<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In December 2004, St. Jude Medical launched the QuickSite Bipolar Model 1056T1044left-ventricular lead in Europe. That same month, a pre-market approval (PMA) application to the FDA was made for the 1056T. St.1045Jude Medical expects FDA approval and full market launch for the 1056T by mid-year 2005. </FONT></P>10461047<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1048<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company’s pacemakers and ICDs interact with an external device1049referred to as a programmer. A programmer has two general functions. First, a programmer is used at the time of pacemaker and ICD1050implants to establish the initial therapeutic settings of these devices as determined by the physician. A programmer is also used1051for follow-up patient visits, which usually occur every three to 12 months, to download stored diagnostic information from the1052implanted devices and to verify appropriate therapeutic settings. </FONT></P>10531054<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1055<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Programmers are small and mobile and are maintained predominantly by the1056Company’s sales representatives at their homes and transported to the hospitals in their vehicles when either implants or1057follow-up visits are scheduled. In these cases, the Company’s sales representatives are on site at the hospitals to assist1058the physicians, nurses and technicians in operating the programmers at the time of patient implants or follow-up visits.1059Alternatively, programmers are stored at high-volume cardiac centers as a matter of convenience. </FONT></P>10601061<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1062<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Since the introduction of programmable pacemakers in about 1977, all1063pacemaker manufacturers, including the Company, have retained title to their programmers which are used by their field sales force1064or by physicians and nurses or technicians. Although the Company derives no direct revenue from the use of its programmers, new1065pacemakers and ICDs generally require the use of the Company’s programmer at the time of implant and follow-up. </FONT></P>10661067<BR><BR>1068<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7 </FONT></P>1069<HR SIZE=3 COLOR=GRAY NOSHADE>1070<!-- *************************************************************************** -->1071<!-- MARKER PAGE="sheet: 0; page: 0" -->1072<BR><BR>10731074<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->1075<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>St. Jude’s Model 3510 universal series pacemaker and ICD programmer1076is an easy-to-use programmer that supports the Company’s pacemakers and ICDs. The Model 3510 universal series programmer1077allows the physician to utilize the diagnostic and therapeutic capabilities of the Company’s pacemakers and ICDs. </FONT></P>10781079<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1080<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Housecall Plus, approved for use in the United States and Canada, is a remote1081monitoring system for St. Jude Medical ICDs (Atlas, Atlas+, Atlas+ HF, Epic, Epic+, Epic HF) that works with standard analog1082telephone lines. It consists of a dedicated receiver (mini desktop computer) and a small answering machine sized1083transmitter. Physicians can better manage their increased number of ICD patients by conducting remote follow-up sessions1084efficiently, obtaining complete diagnostics in real time (similar to an in-office data interrogation), and choosing how they wish1085to use/operate the system. Patients enjoy the comfort and convenience of their own home while interacting with a live1086technician to assist them in transmission. </FONT></P>10871088<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1089<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Electrophysiology is the study of the heart’s electrical activity, which1090controls how quickly and effectively the heart beats. EP catheters and introducers are placed into the human heart through blood1091vessels in order to diagnose and treat cardiac arrhythmias (abnormal heart rhythms). </FONT></P>10921093<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->1094<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>St. Jude Medical offers a variety of EP products in multiple1095configurations. For diagnosing arrhythmias, the Company’s Supreme<SUP>™</SUP> and Response<SUP>™</SUP> fixed-curve1096catheters and Livewire<SUP>™</SUP> steerable diagnostic catheters provide options for physicians dealing with unique1097anatomical situations. Swartz™ Guiding Introducers and the Telesheath™ Left Atrial Introducer System provide a stable1098foundation in the left atrium, guiding catheters to precise locations. Finally, the Company’s Livewire TC™ Ablation1099Catheters apply therapeutic radiofrequency (RF) energy to cardiac tissue, helping to manage or cure many cardiac arrhythmias.1100</FONT></P>11011102<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1103<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Cardiac Surgery:</I> Heart valve replacement or repair1104may be necessary because the natural heart valve has deteriorated due to congenital defects or disease. Heart valves facilitate1105the one-way flow of blood in the heart and prevent significant backflow of blood into the heart and between the heart’s1106chambers. St. Jude offers both mechanical and tissue replacement heart valves and valve repair products. The St. Jude1107Medical<SUP>®</SUP> mechanical heart valve has been implanted in over 1.5 million patients worldwide. The SJM Regent®1108mechanical heart valve was approved for sale in Europe in December 1999 and received FDA approval for U.S. market release in March11092002. In the United States, the Company markets the Toronto SPV<SUP>®</SUP> stentless tissue valve, which received FDA1110approval in 1997. Outside the United States, the Company markets the SJM Epic™ stented tissue heart valve, the SJM1111Biocor® stented tissue valve, the Toronto SPV<SUP>®</SUP> stentless tissue valve and the Toronto Root™ tissue valve.1112The Toronto Root® tissue valve is a stentless aortic root bioprosthesis used when aortic root disease accompanies valve1113disease. The Toronto Root® tissue valve is currently in U.S. and Canadian clinical studies. The SJM Epic® stented tissue1114heart valves are also currently in U.S. clinical studies. St. Jude anticipates FDA approval of the SJM Biocor® tissue valve in1115the second half of 2005. </FONT></P>11161117<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1118<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company also offers a line of heart valve repair products, including the1119semi-rigid SJM<SUP>® </SUP>Séguin annuloplasty ring and the fully flexible SJM Tailor™ annuloplasty ring.1120Annuloplasty rings are prosthetic devices used to repair diseased or damaged mitral heart valves. </FONT></P>11211122<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1123<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>During the fourth quarter of 2004, the Company initiated a limited market1124release of its Epicor™ Cardiac Ablation System (Epicor System). This technology was acquired as part of the Company’s1125Epicor acquisition in June 2004. By applying HIFU to the outside of a beating heart, the Epicor System </FONT></P>11261127<BR><BR>1128<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8 </FONT></P>1129<HR SIZE=3 COLOR=GRAY NOSHADE>1130<!-- *************************************************************************** -->1131<!-- MARKER PAGE="sheet: 0; page: 0" -->1132<BR><BR>113311341135<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1136<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>creates cardiac ablation lesions without the need to put the patient on a1137heart-lung bypass machine, leading to safe, effective, and reproducible therapy. The primary components of the Company’s1138Epicor System include the Ablation Control System™ (ACS) that generates and controls the ultrasound energy, the1139UltraCinch™ that wraps around the heart and creates a long linear lesion and the UltraWand™ that allows for additional1140linear lesions to be customized by the physician. </FONT></P>11411142<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1143<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Cardiology and Vascular Access:</I> The Company produces1144specialized disposable cardiovascular devices, including vascular closure devices, angiography catheters, bipolar temporary pacing1145catheters, percutaneous catheter introducers and diagnostic guidewires. </FONT></P>11461147<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1148<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company’s vascular closure devices are used to close femoral artery1149puncture sites following angioplasty, stenting and diagnostic procedures. St. Jude Medical’s newest vascular closure product,1150the Angio-Seal™ STS Plus, was launched globally in the third quarter of 2003. The Angio-Seal™ STS Plus model has1151incorporated improvements to the STS Platform device design to provide customers a device which provides optimal product1152performance, reliability and ease of use. The design changes include a newly designed arteriotomy locator that provides a smooth1153transition from locator to insertion sheath, newly positioned blood inlet holes that eliminate the insertion sheath tip from1154having to exit and re-enter the arteriotomy site and a new lock-in hub design. The design still incorporates many of the design1155features of the STS Platform, including the self-tightening suture, which eliminates the need for a post-placement spring,1156allowing for completion of the entire procedure in the catheterization lab. It also integrates the Secure-Cap™, which1157facilitates proper deployment through audible, tactile and visual confirmations during the closure process. </FONT></P>11581159<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1160<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Angiography catheters, such as St. Jude’s Spyglass™ angiography1161catheters, are used in coronary angiography procedures to obtain images of coronary arteries to identify structural cardiac1162diseases. St. Jude’s bipolar temporary pacing catheters are inserted percutaneously for temporary use (ranging from less than1163one hour to a maximum of one week) with external pacemakers to provide patient stabilization prior to implantation of a permanent1164pacemaker, following a heart attack, or during surgical procedures. The Company produces and markets several designs of bipolar1165temporary pacing catheters, including its Pacel™ biopolar pacing catheters, which are available in both torque control and1166flow-directed models with a broad range of curve choices and electrode spacing options. </FONT></P>11671168<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1169<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Percutaneous catheter introducers are used to create passageways for1170cardiovascular catheters from outside the human body through the skin into a vein, artery or other location inside the body. St.1171Jude’s percutaneous catheter introducer products consist primarily of peel-away and non peel-away sheaths, sheaths with and1172without hemostasis valves, dilators, guidewires, repositioning sleeves and needles. These products are offered in a variety of1173sizes and packaging configurations. Diagnostic guidewires, such as St. Jude’s GuideRight™ and HydroSteer™1174guidewires, are used in conjunction with percutaneous catheter introducers to aid in the introduction of intravascular catheters.1175St. Jude’s diagnostic guidewires are available in multiple lengths and incorporate a surface finish for lasting lubricity.1176</FONT></P>11771178<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1179<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Suppliers</B>1180<BR>St. Jude purchases raw materials and other products from numerous suppliers. The Company’s manufacturing1181requirements comply with the rules and regulations of the FDA, which mandates extensive testing and validation of materials prior1182to use in the Company’s products. St. Jude uses sole-sourced inventory items in certain products. St. Jude has been advised1183periodically by some suppliers that they may terminate sales of products to customers that manufacture implantable </FONT></P>11841185<BR><BR>1186<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9 </FONT></P>1187<HR SIZE=3 COLOR=GRAY NOSHADE>1188<!-- *************************************************************************** -->1189<!-- MARKER PAGE="sheet: 0; page: 0" -->1190<BR><BR>119111921193<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1194<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>medical devices in an effort to reduce their potential product liability1195exposure. Some of these suppliers have modified their positions and have indicated a willingness to temporarily continue to1196provide product until an alternative vendor or product can be qualified, or to reconsider the supply relationship. While the1197Company believes that alternative sources of raw materials are available and that there is sufficient lead time in which to1198qualify other sources, any supply interruption could have a material adverse effect on the Company’s ability to manufacture1199its products. </FONT></P>12001201<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1202<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Competition</B>1203<BR>The medical technology industry is highly competitive and is characterized by rapid product development and technological1204change. Within the medical technology industry, competitors range from small start-up companies to companies with significant1205resources. The Company’s customers consider many factors when choosing supplier partners, including product reliability,1206clinical outcomes, product availability, inventory consignment, price and product services provided by the manufacturer. St. Jude1207believes that it competes on the basis of all these factors. Market share can shift as a result of technological innovation,1208product recalls and safety alerts and other business factors. As a result, the Company has a need to provide the highest quality1209products and services. St. Jude expects the competition to continue to increase with the use of tactics such as consigned1210inventory, bundled product sales and reduced pricing. </FONT></P>12111212<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->1213<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>St. Jude is one of the three principal manufacturers and suppliers in1214the global bradycardia pacemaker market, with strong bradycardia market share in all major developed geographies. The1215Company’s primary competitors in this market are Medtronic, Inc. and Guidant Corporation. St. Jude is also one of three1216principal manufacturers and suppliers in the highly competitive global ICD market. The Company’s other two competitors,1217Medtronic, Inc. and Guidant Corporation, account for more than 80% of the worldwide ICD sales. These two competitors are larger1218than St. Jude and have invested substantial amounts in ICD research and development. </FONT></P>12191220<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->1221<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>St. Jude is the world’s leading manufacturer and supplier in the1222mechanical heart valve market, which includes two other principal manufacturers and suppliers (Carbomedics, a Sorin Group company,1223and ATS Medical, Inc.) and several smaller manufacturers. The Company also competes against two principal tissue heart valve1224manufacturers (Edwards Lifesciences Corporation and Medtronic, Inc.) and many other smaller manufacturers. </FONT></P>12251226<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1227<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The global cardiology and vascular access therapy area is growing and has1228numerous competitors. Over 70% of the Company’s sales in this area are from vascular closure devices. St. Jude currently1229holds the number one market position in the highly competitive vascular closure device market. Other vascular closure device1230competitors include Abbott Laboratories and Datascope Corp. The Company anticipates other large companies will enter this market1231in the coming years, which will likely increase competition. </FONT></P>12321233<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1234<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Marketing</B>1235<BR>The Company’s products are sold in more than 130 countries throughout the world. No distributor organization or single1236customer accounted for more than 10% of 2004, 2003 or 2002 consolidated net sales. </FONT></P>12371238<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1239<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In the United States, St. Jude sells directly to hospitals primarily through1240a direct sales force. In Europe, the Company has direct sales organizations selling in 15 countries. In Japan, the Company sells1241directly to hospitals through a direct sales force due to its acquisition of Getz Japan on April 1, 2003, and also continues to1242use longstanding independent distributor relationships. Throughout the rest of the world, the Company uses a combination of1243independent distributors and direct sales forces. </FONT></P>124412451246<BR><BR>1247<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10 </FONT></P>1248<HR SIZE=3 COLOR=GRAY NOSHADE>1249<!-- *************************************************************************** -->1250<!-- MARKER PAGE="sheet: 0; page: 0" -->1251<BR><BR>1252125312541255<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1256<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Group purchasing organizations (GPO) and independent delivery networks (IDN)1257and large single accounts such as the Veterans Administration in the United States continue to consolidate purchasing decisions1258for some of the Company’s hospital customers. The Company has contracts in place with many of these organizations. In some1259circumstances, the inability of the Company to obtain a contract with a GPO or IDN could adversely affect the Company’s1260efforts to sell its products to that organization’s hospitals. </FONT></P>12611262<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1263<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Payment terms worldwide are consistent with local country practices. In some1264developed markets and in many emerging markets, payment terms are typically longer than those in the United States. Orders are1265shipped as they are received and, therefore, no material backlog exists. </FONT></P>12661267<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1268<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Seasonality</B>1269<BR>The Company’s quarterly net sales are influenced by many factors, including new product introductions, acquisitions,1270regulatory approvals, patient holiday schedules and other factors. Net sales in the third quarter are typically lower than other1271quarters of the year as a result of patient tendencies to defer, if possible, cardiac procedures during the summer months and from1272the seasonality of the U.S. and European markets, where summer vacation schedules normally result in fewer procedures. Large1273orders may disrupt the net sales patterns. </FONT></P>12741275<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1276<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Research and Development </B>1277<BR>The Company is focused on the development of new products and on improvements to existing products. Research and development1278expense reflects the cost of these activities, as well as the costs to obtain regulatory approvals of certain new products and1279processes and to maintain the highest quality standards with respect to existing products. The Company’s research and1280development expenses were $281.9 million (12.3% of net sales) in 2004, $241.1 million (12.5% of net sales) in 2003 and $200.31281million (12.6% of net sales) in 2002. Research and development expense for 2004 excludes $9.1 million of purchased in-process1282research and development charges relating to the acquisition of Irvine Biomedical, Inc. in October 2004. </FONT></P>12831284<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1285<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Government Regulation</B>1286<BR>The medical devices manufactured and marketed by the Company are subject to regulation by the FDA and foreign governmental1287authorities or their designated representatives. Under the U.S. Federal Food, Drug and Cosmetic Act (FFDCA) and associated1288regulations, manufacturers of medical devices must comply with certain policies and procedures that regulate the composition,1289labeling, testing, manufacturing, packaging and distribution of medical devices. Medical devices are subject to different levels1290of government approval requirements. The most comprehensive level requires the completion of an FDA-approved clinical evaluation1291program and submission and approval of a pre-market approval (PMA) application before a device may be commercially marketed. The1292Company’s mechanical and tissue heart valves, ICDs, certain pacemakers and leads, and certain electrophysiology catheter1293applications are subject to this level of approval or as a supplement to a PMA. Other pacemakers and leads, annuloplasty ring1294products and other electrophysiology and cardiology products are currently marketed under the less rigorous 510(k) pre-market1295notification procedure of the FFDCA. </FONT></P>129612971298<BR><BR>1299<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11 </FONT></P>1300<HR SIZE=3 COLOR=GRAY NOSHADE>1301<!-- *************************************************************************** -->1302<!-- MARKER PAGE="sheet: 0; page: 0" -->1303<BR><BR>13041305<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1306<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In addition, the FDA may require testing and surveillance programs to monitor1307the effects of approved products that have been commercialized, and it has the power to prevent or limit further marketing of a1308product based on the results of these post-marketing programs. The FDA also conducts inspections prior to approval of a PMA to1309determine compliance with the quality system regulations that cover manufacturing and design. At any time after approval of a PMA1310or granting of a 510(k), the FDA may conduct periodic inspections to determine compliance with both quality system regulations1311and/or current medical device reporting regulations. If the FDA were to conclude that St. Jude is not in compliance with1312applicable laws or regulations, it could institute proceedings to detain or seize products, issue a recall, impose operating1313restrictions, assess civil penalties and recommend criminal prosecution to the U.S. Department of Justice. Furthermore, the FDA1314could proceed to ban a device, or request recall, repair, replacement or refund of the cost of any device previously manufactured1315or distributed. </FONT></P>13161317<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1318<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The FDA also regulates recordkeeping for medical devices and reviews hospital1319and manufacturers’ required reports of adverse experiences to identify potential problems with FDA-authorized devices.1320Regulatory actions may be taken by the FDA due to adverse experience reports. </FONT></P>13211322<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1323<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Diagnostic-related groups (DRG) and Ambulatory Patient Classifications (APC)1324reimbursement schedules regulate the amount that the U.S. government, through the Centers for Medicare and Medicaid Services1325(CMS), will reimburse hospitals for care of persons covered by Medicare. In response to rising Medicare and Medicaid costs,1326several legislative proposals are under consideration that would restrict future funding increases for these programs. Changes in1327current DRG and APC reimbursement levels could have an adverse effect on the Company’s domestic pricing flexibility.1328</FONT></P>13291330<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1331<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Federal and state laws protect the confidentiality of certain patient health1332information, including patient records, and restrict the use and disclosure of such information. In particular, in December 2000,1333the U.S. Department of Health and Human Services published patient privacy rules under the Health Insurance Portability and1334Accountability Act of 1996 (HIPAA privacy rule). This regulation was finalized in October 2002. The HIPAA privacy rule governs the1335use and disclosure of protected health information by “covered entities,” which are healthcare providers that submit1336electronic claims, health plans and healthcare clearinghouses. Other than to the extent the Company self-insures part of its1337employee health benefits plans, the HIPAA privacy rule affects the Company only indirectly. The Company’s policy is to1338maintain patients’ privacy and work with customers and business partners in their HIPAA compliance efforts. </FONT></P>13391340<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->1341<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>St. Jude’s international business is subject to medical device laws1342in individual countries outside the United States. These laws range from extensive device approval requirements in some countries1343for all or some of the Company’s products, to requests for data or certifications in other countries. Generally,1344international regulatory requirements are increasing. In the European Union, the regulatory systems have been consolidated, and1345approval to market in all European Union countries (represented by the CE Mark) can be obtained through one agency. In addition,1346initiatives to limit the growth of healthcare costs, including price regulation, are also underway in other countries in which the1347Company does business. Implementation of healthcare reforms in significant markets such as Japan, Germany and other countries may1348limit the price of, or the level at which reimbursement is provided for the Company’s products. </FONT></P>1349<BR><BR><BR><BR><BR><BR><BR>1350<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12 </FONT></P>1351<HR SIZE=3 COLOR=GRAY NOSHADE>1352<!-- *************************************************************************** -->1353<!-- MARKER PAGE="sheet: 0; page: 0" -->1354<BR><BR>13551356<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1357<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The United States Medicare-Medicaid Anti-kickback law generally prohibits1358payments to physicians or other purchasers of medical products under these government programs in exchange for the purchase of a1359product. Many foreign countries have similar laws. The Company subscribes to the AdvaMed Code (AdvaMed is a U.S. medical device1360industry trade association) which limits certain marketing and other practices in the Company’s relationship with product1361purchasers. The Company also adheres to many similar codes in countries outside the United States. </FONT></P>13621363<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1364<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Some medical device regulatory agencies have begun considering whether to1365continue to permit the sale of medical devices that incorporate any bovine material because of concerns about Bovine Spongiform1366Encephalopathy (BSE), sometimes referred to as “mad cow disease.” It is believed that in some instances this disease has1367been transmitted to humans through the consumption of beef. There have been no reported cases of transmission of BSE through1368medical products. Some of the Company’s products (Angio-Seal™ and vascular grafts) use bovine collagen, which is derived1369from the bovine component scientifically rated as least likely to transmit the disease. Some of the Company’s tissue heart1370valves incorporate bovine pericardial material. The Company is cooperating with the regulatory agencies considering these issues.1371</FONT></P>13721373<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1374<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Patents and Licenses</B>1375<BR>The Company’s policy is to protect its intellectual property rights related to its medical devices. Where appropriate,1376St. Jude applies for United States and foreign patents. In those instances where the Company has acquired technology from third1377parties, it has sought to obtain rights of ownership to the technology through the acquisition of underlying patents or licenses.1378</FONT></P>13791380<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1381<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>While the Company believes design, development, regulatory and marketing1382aspects of the medical device business represent the principal barriers to entry, it also recognizes that the Company’s1383patents and license rights may make it more difficult for competitors to market products similar to those produced by the Company.1384St. Jude can give no assurance that any of its patent rights, whether issued, subject to license, or in process, will not be1385circumvented or invalidated. Furthermore, there are numerous existing and pending patents on medical products and biomaterials.1386There can be no assurance that the Company’s existing or planned products do not or will not infringe such rights or that1387others will not claim such infringement. No assurance can be given that the Company will be able to prevent competitors from1388challenging the Company’s patents or entering markets currently served by the Company. </FONT></P>13891390<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1391<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Insurance</B>1392<BR>The Company operates in an industry that is susceptible to significant product liability claims. These claims may be brought1393by individuals seeking relief for themselves or, increasingly, by groups seeking to represent a class. In addition, product1394liability claims may be asserted against the Company in the future, relative to events that are not known to management at the1395present time. As a result of the catastrophic events of September 11, 2001, enormous losses were sustained by property and1396casualty insurers which substantially reduced their capacity and/or willingness to provide future insurance coverage.1397Consequently, since 2001 the Company’s product liability insurance premiums have increased over 450%, and the total coverage1398has been reduced. The Company’s current product liability policy (for the period April 1, 2004 through April 1, 2005)1399provides $425 million of insurance coverage, with a $75 million deductible per occurrence. In light of the significant1400self-insured retention, St. Jude’s product liability insurance coverage is designed to help protect the Company against a1401catastrophic claim. </FONT></P>14021403<BR><BR>1404<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13 </FONT></P>1405<HR SIZE=3 COLOR=GRAY NOSHADE>1406<!-- *************************************************************************** -->1407<!-- MARKER PAGE="sheet: 0; page: 0" -->1408<BR><BR>14091410<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1411<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>California earthquake insurance is currently difficult to procure, extremely1412costly, and restrictive in terms of coverage. The Company’s earthquake and related business interruption insurance for its1413CRM operations located in Sylmar and Sunnyvale, California, provides $30 million of insurance coverage, with a deductible equal to14145% of the total value of the facility and contents involved in the claim. Several factors preclude the Company from determining1415the effect an earthquake may have on its business. These factors include, but are not limited to, the severity and location of the1416earthquake, the extent of any damage to the Company’s manufacturing facilities, the impact of an earthquake on the1417Company’s California workforce, and the infrastructure of the surrounding communities and the extent, if any, of damage to1418the Company’s inventory and work in process. While the Company’s exposure to significant losses from a California1419earthquake would be partially mitigated by its ability to manufacture some of its CRM products at its Swedish manufacturing1420facility, the losses could have a material adverse effect on the Company for a period of time that cannot be predicted. The1421Company has expanded the manufacturing capabilities at its Swedish facility and has constructed a pacemaker component1422manufacturing facility in Arizona. In addition, the Company has moved significant finished goods inventory to locations outside1423California. These facilities and inventory transfers would further mitigate the adverse impact of a California earthquake.1424</FONT></P>14251426<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1427<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Employees</B>1428<BR>As of December 31, 2004, the Company had approximately 7,900 full-time employees. St. Jude’s employees are not1429represented by any labor organizations, with the exception of the Company’s employees in Sweden and certain employees in1430France. St. Jude has never experienced a work stoppage as a result of labor disputes. The Company believes that its relationship1431with its employees is generally good. </FONT></P>14321433<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1434<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>International Operations</B>1435<BR>The Company’s international business is subject to such special risks as currency exchange controls and fluctuations, the1436imposition or increase of import or export duties and surtaxes, and international credit, financial and political problems.1437Currency exchange rate fluctuations relative to the U.S. dollar can affect reported consolidated revenues and net earnings. The1438Company may hedge a portion of this exposure from time to time to reduce the effect of foreign currency rate fluctuations on net1439earnings. See the “Market Risk” section of “Management’s Discussion and Analysis of Financial Condition and1440Results of Operations,” incorporated herein by reference from the Financial Report included in the Company’s 2004 Annual1441Report to Shareholders. Operations outside the United States also present complex tax and cash management issues that necessitate1442sophisticated analysis and diligent monitoring to meet the Company’s financial objectives. </FONT></P>14431444<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1445<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Availability of SEC Reports</B>1446<BR>The Company makes available free of charge its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on1447Form 8-K and any amendments filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon1448as reasonably practical after they are filed or furnished to the Securities and Exchange Commission. Such reports are available on1449the Company’s Web site (http://www.sjm.com) under the Investor Relations section or can be obtained by contacting the1450Company’s Investor Relations group at 1.800.552.7664 or at St. Jude Medical, Inc., One Lillehei Plaza, St. Paul, Minnesota145155117. Information included on the Company’s Web site is not deemed to be incorporated into this Annual Report on Form 10-K.1452</FONT></P>14531454<BR><BR>1455<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14 </FONT></P>1456<HR SIZE=3 COLOR=GRAY NOSHADE>1457<!-- *************************************************************************** -->1458<!-- MARKER PAGE="sheet: 0; page: 0" -->1459<BR><BR>146014611462<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1463<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 2. PROPERTIES </FONT></H1>14641465<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->1466<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>St. Jude’s principal executive offices are located in St. Paul,1467Minnesota. These facilities are owned by the Company. Manufacturing facilities are located in California, Minnesota, Arizona,1468South Carolina, Canada, Brazil, Puerto Rico and Sweden. The Company owns approximately 52%, or 338,000 square feet, of its total1469manufacturing space. All of the owned manufacturing space is in the CRM/CS segment. The remaining manufacturing space is leased.1470</FONT></P>14711472<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1473<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company also maintains sales and administrative offices in the United1474States at 18 locations in 10 states and outside the United States at 68 locations in 25 countries. With the exception of two1475locations, all of these locations are leased. </FONT></P>14761477<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1478<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In management’s opinion, all buildings, machinery and equipment are in1479good condition, suitable for their purposes and are maintained on a basis consistent with sound operations. The Company believes1480that it has sufficient space for its current operations and for foreseeable expansion in the next few years. </FONT></P>14811482<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1483<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 3. LEGAL PROCEEDINGS </FONT></H1>14841485<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1486<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Silzone® Litigation:</I> In July 1997, the Company1487began marketing mechanical heart valves which incorporated a Silzone® coating. The Company later began marketing heart valve1488repair products incorporating a Silzone® coating. The Silzone® coating was intended to reduce the risk of endocarditis, a1489bacterial infection affecting heart tissue, which is associated with replacement heart valves. </FONT></P>14901491<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1492<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In January 2000, the Company voluntarily recalled all field inventories of1493Silzone® devices after receiving information from a clinical study that patients with a Silzone® valve had a small, but1494statistically significant, increased incidence of explant due to paravalvular leak compared to patients in that clinical study1495with non-Silzone® heart valves. </FONT></P>14961497<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1498<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Subsequent to the Company’s voluntary recall, the Company has been sued1499in various jurisdictions and now has cases pending in the United States, Canada, the United Kingdom, Ireland and France by some1500patients who received a Silzone® device. Some of these claims allege bodily injuries as a result of an explant or other1501complications, which they attribute to the Silzone® devices. Others, who have not had their device explanted, seek1502compensation for past and future costs of special monitoring they allege they need over and above the medical monitoring all1503replacement heart valve patients receive. Some of the lawsuits seeking the cost of monitoring have been initiated by patients who1504are asymptomatic and who have no apparent clinical injury to date. Some of the cases involving Silzone products have been settled,1505some have been dismissed and others are on going. Some of these cases, both in the United States and Canada, are seeking1506class-action status. A summary of the number of Silzone® cases by jurisdiction as of February 25, 2005 follows: </FONT></P>15071508<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->1509<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>U.S. Cases</U> </FONT> </P>15101511<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 1" FSL="Default" -->1512<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>1513<TR VALIGN=TOP>1514<TD ALIGN=RIGHT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>1515<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1516<TD WIDTH=94%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Multi-District Litigation (MDL) and federal district1517court in Minnesota: </FONT></P></TD>1518</TR>1519</TABLE>1520<BR>15211522<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 2" FSL="Default" -->1523<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>1524<TR VALIGN=TOP>1525<TD ALIGN=RIGHT WIDTH=6%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>1526<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1527<TD WIDTH=91%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Eight original class-action complaints have been1528consolidated into one case seeking certification of two separate classes. The first complaint seeking class-action status was1529served upon the Company on April 27, 2000 and all eight original complaints seeking </FONT></P></TD>1530</TR>1531</TABLE>1532<BR>153315341535<BR><BR>1536<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>15 </FONT></P>1537<HR SIZE=3 COLOR=GRAY NOSHADE>1538<!-- *************************************************************************** -->1539<!-- MARKER PAGE="sheet: 0; page: 0" -->1540<BR><BR>154115421543<!-- MARKER FORMAT-SHEET="Para Flush Level 1" FSL="Default" -->1544<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>1545<TR VALIGN=TOP>1546<TD WIDTH=9%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1547<TD WIDTH=91%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>class-action status were consolidated into one case on October 22,15482001. One proposed class in the consolidated complaint seeks injunctive relief in the form of medical monitoring. A second class1549in the consolidated complaint seeks an unspecified amount of monetary damages. A third class in the consolidated complaint seeks1550an unspecified amount of monetary damages under Minnesota’s Consumer Protection Statutes. </FONT></TD>1551</TR>1552</TABLE>1553<BR>15541555<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 2" FSL="Default" -->1556<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>1557<TR VALIGN=TOP>1558<TD ALIGN=RIGHT WIDTH=6%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>1559<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1560<TD WIDTH=91%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Eighteen individual cases are pending as of February156125, 2005 in the MDL. The first individual complaint that was transferred to the MDL court was served upon the Company on November156228, 2000, and the most recent individual complaint that was transferred to the MDL court was served upon the Company on September156315, 2004. The complaints in these cases each request damages ranging from $10 thousand to $120.5 million and, in some cases, seek1564an unspecified amount. </FONT></P></TD>1565</TR>1566</TABLE>1567<BR>15681569<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 1" FSL="Default" -->1570<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>1571<TR VALIGN=TOP>1572<TD ALIGN=RIGHT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>1573<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1574<TD WIDTH=94%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Twenty-six individual state court suits involving 341575patients are pending as of February 25, 2005. The cases are venued in the following states: Florida, Minnesota, Missouri, Texas1576and Wyoming. The first individual state court complaint was served upon the Company on March 1, 2000 and the most recent1577individual state court complaint was served upon the Company on January 13, 2005. The complaints in these cases each request1578damages ranging from $50 thousand to $100 thousand and, in some cases, seek an unspecified amount. </FONT></P></TD>1579</TR>1580</TABLE>1581<BR>15821583<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 1" FSL="Default" -->1584<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>1585<TR VALIGN=TOP>1586<TD ALIGN=RIGHT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>1587<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1588<TD WIDTH=94%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>A lawsuit seeking a class action for all persons1589residing in the European Economic Union member jurisdictions who have had a heart valve replacement and/or repair procedure using1590a product with Silzone® coating was filed in Minnesota state court and served upon the Company on February 11, 2004. The1591complaint seeks damages in an unspecified amount for the class, and in excess of $50 thousand for the representative plaintiff1592individually. The complaint also seeks injunctive relief in the form of medical monitoring. The Company has filed1593motions in the state court seeking to have the claims dismissed, and these motions are presently under consideration by the judge1594handling this and other Silzone cases in Ramsey County, Minnesota. </FONT></P></TD>1595</TR>1596</TABLE>1597<BR>15981599<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 1" FSL="Default" -->1600<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>1601<TR VALIGN=TOP>1602<TD ALIGN=RIGHT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>1603<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1604<TD WIDTH=94%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Two cases involving 70 patients were dismissed in1605Texas by the trial court on April 25, 2002 and February 14, 2003, respectively; the plaintiffs in these two cases have appealed.1606The first of these cases was served upon the Company on October 29, 2001, and the second case was served upon the Company on1607November 8, 2002<I>. </I>The complaints in these cases request damages in an unspecified amount. </FONT></P></TD>1608</TR>1609</TABLE>1610<BR>16111612<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->1613<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Non-U.S. Cases</U> </FONT> </P>16141615<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->1616<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Canada: </FONT></P>16171618<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 1" FSL="Default" -->1619<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>1620<TR VALIGN=TOP>1621<TD ALIGN=RIGHT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>1622<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1623<TD WIDTH=94%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Four class-action cases involving five named1624plaintiffs and one individual case involving two named plaintiffs are pending as of February 25, 2005 (cases are venued in the1625provinces of British Columbia, Ontario and Quebec); in Ontario and Quebec the courts have certified class actions. The first1626complaint in Canada was served upon the Company on August 18, 2000, and the most recent Canadian complaint was served upon the1627Company on March 14, 2004. The complaints in these cases each request damages ranging from 1.5 million to 500 million Canadian1628dollars. </FONT></P></TD>1629</TR>1630</TABLE>1631<BR>16321633<BR><BR>1634<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>16 </FONT></P>1635<HR SIZE=3 COLOR=GRAY NOSHADE>1636<!-- *************************************************************************** -->1637<!-- MARKER PAGE="sheet: 0; page: 0" -->1638<BR><BR>16391640<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->1641<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>UK: </FONT></P>16421643<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 1" FSL="Default" -->1644<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>1645<TR VALIGN=TOP>1646<TD ALIGN=RIGHT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>1647<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1648<TD WIDTH=94%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>One case involving one plaintiff is pending as of1649February 25, 2005 and the Particulars of Claim in this case was served on December 21, 2004. The plantiff in this case requests1650damages of approximately $365 thousand. </FONT></P></TD>1651</TR>1652</TABLE>1653<BR>16541655<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->1656<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Ireland: </FONT></P>16571658<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 1" FSL="Default" -->1659<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>1660<TR VALIGN=TOP>1661<TD ALIGN=RIGHT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>1662<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1663<TD WIDTH=94%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>One case involving one plaintiff is pending as of1664February 25, 2005. The complaint in this case was served on December 30, 2004, and seeks an unspecified amount in damages.1665</FONT></P></TD>1666</TR>1667</TABLE>1668<BR>16691670<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->1671<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>France: </FONT></P>16721673<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 1" FSL="Default" -->1674<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>1675<TR VALIGN=TOP>1676<TD ALIGN=RIGHT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o </FONT></TD>1677<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1678<TD WIDTH=94%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>One case involving one plaintiff is pending as of1679February 25, 2005. This case was initiated by way of an Injunctive Summons to Appear that was served on November 3, 2004. The1680plaintiff in this case is requesting damages in excess of 3 million Euros. </FONT></P></TD>1681</TR>1682</TABLE>1683<BR>16841685<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1686<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Silzone® litigation reserves established by the Company are not based1687on the amount of the claims because, based on the Company’s experience in these types of cases, the amount ultimately paid,1688if any, often does not bear any relationship to the amount claimed by the plaintiffs and is often significantly less than the1689amount claimed. </FONT></P>16901691<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1692<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In 2001, the U.S. Judicial Panel on Multi-District Litigation ruled that1693certain lawsuits filed in U.S. federal district court involving products with Silzone® coating should be part of1694Multi-District Litigation proceedings under the supervision of U.S. District Court Judge John Tunheim in Minnesota. As a result,1695actions in federal court involving products with Silzone® coating have been and will likely continue to be transferred to1696Judge Tunheim for coordinated or consolidated pretrial proceedings. </FONT></P>16971698<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1699<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Judge Tunheim ruled against the Company on the issue of preemption and found1700that the plaintiffs’ causes of action were not preempted by the U.S. Food and Drug Act. The Company sought to appeal this1701ruling, but the Appellate Court determined that it would not review the ruling at this point in the proceedings. </FONT></P>17021703<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1704<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certain plaintiffs have requested Judge Tunheim to allow some cases to1705proceed as class actions. In response these requests, Judge Tunheim has issued several rulings concerning class action1706certification. Although more detail is set forth in the orders issued by the court, the result of these rulings is that Judge1707Tunheim declined to grant class-action status to personal injury claims, but granted class-action status for claimants from1708seventeen states to proceed with medical monitoring claims, so long as they do not have a clinical injury. The court also1709indicated that a class action could proceed under Minnesota’s Consumer Protection statutes. </FONT></P>17101711<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1712<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company has sought appeal of Judge Tunheim’s class certification1713decisions, and in a September 2, 2004, order, the appellate court indicated it would accept the appeal of Judge Tunheim’s1714certification orders. The issues have been briefed and the parties are awaiting a date for oral argument concerning this appeal.1715It is not expected that the appellate court will complete its review and issue a decision concerning the appeal of Judge1716Tunheim’s rulings regarding class certification until sometime in 2006. </FONT></P>171717181719<BR><BR>1720<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>17 </FONT></P>1721<HR SIZE=3 COLOR=GRAY NOSHADE>1722<!-- *************************************************************************** -->1723<!-- MARKER PAGE="sheet: 0; page: 0" -->1724<BR><BR>17251726<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1727<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In the meantime, the cases involving Silzone® products not seeking1728class-action status which are consolidated before Judge Tunheim are proceeding in accordance with the scheduling orders he has1729rendered. There are also other actions involving products with Silzone® coating in various state courts in the United States1730that may or may not be coordinated with the matters presently before Judge Tunheim. </FONT></P>17311732<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1733<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On January 16, 2004, the court in Ontario, Canada, issued further rulings1734certifying a class of Silzone® patients in a class-action suit against the Company. The Company sought leave to appeal the1735Court’s decision in this regard, but in a decision issued on January 28, 2005, the request to appeal was rejected. As a1736result, the class action in Ontario will proceed pursuant to further scheduling orders that will be issued by the Ontario court.1737The Court in the Province of Quebec has also certified a class action in that jurisdiction. </FONT></P>17381739<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1740<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company is not aware of any unasserted claims related to Silzone®1741devices. Company management believes that the final resolution of the Silzone® cases will take several years. While management1742reviews the claims that have been asserted from time to time and periodically engages in discussions about the resolution of1743claims with claimants’ representatives, management cannot reasonably estimate at this time the time frame in which any1744potential settlements or judgments would be paid out. The Company accrues for contingent losses when it is probable that a loss1745has been incurred and the amount can be reasonably estimated. The Company has recorded an accrual for probable legal costs that it1746will incur to defend the various cases involving Silzone® devices, and the Company has recorded a receivable from its product1747liability insurance carriers for amounts expected to be recovered (see Note 5 to the Consolidated Financial Statements). The1748Company has not accrued for any amounts associated with probable settlements or judgments because management cannot reasonably1749estimate such amounts. However, management believes that no significant claims will ultimately be allowed to proceed as class1750actions in the United States and, therefore, that all settlements and judgments will be covered under the Company’s remaining1751product liability insurance coverage (approximately $151.0 million as of February 25, 2005), subject to the insurance1752companies’ performance under the policies (see Note 5 to the Consolidated Financial Statements for further discussion on the1753Company’s insurance carriers). As such, management believes that any costs (the material components of which are settlements,1754judgments, legal fees and other related defense costs) not covered by its product liability insurance policies or existing1755reserves will not have a material adverse effect on the Company’s statement of financial position or liquidity, although such1756costs may be material to the Company’s consolidated results of operations of a future period. </FONT></P>17571758<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1759<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Guidant 1996 Patent Litigation:</I> In November 1996,1760Guidant Corporation (Guidant) sued St. Jude Medical in federal district court for the Southern District of Indiana alleging that1761the Company did not have a license to certain patents controlled by Guidant covering ICD products and alleging that the Company1762was infringing those patents. St. Jude Medical’s contention was that it had obtained a license from Guidant to the patents in1763issue when it acquired certain assets of Telectronics in November 1996. In July 2000, an arbitrator rejected St. Jude1764Medical’s position, and in May 2001, a federal district court judge also ruled that the Guidant patent license with1765Telectronics had not transferred to St. Jude Medical. </FONT></P>17661767<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1768<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Guidant’s suit originally alleged infringement of four patents by St.1769Jude Medical. Guidant later dismissed its claim on one patent and a court ruled that a second patent was invalid. This1770determination of invalidity was appealed by Guidant, and the Court of Appeals upheld the lower court’s invalidity1771determination. In a jury trial involving the two remaining patents (the ‘288 and ‘472 patents), the jury found that1772these patents were valid and that St. Jude Medical did not infringe the ‘288 patent. The jury also found that the Company did1773infringe the ‘472 patent, though such </FONT></P>17741775<BR><BR>1776<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>18 </FONT></P>1777<HR SIZE=3 COLOR=GRAY NOSHADE>1778<!-- *************************************************************************** -->1779<!-- MARKER PAGE="sheet: 0; page: 0" -->1780<BR><BR>178117821783<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1784<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>infringement was not willful. The jury awarded damages of $140.0 million to1785Guidant. In post-trial rulings, however, the judge overseeing the jury trial ruled that the ‘472 patent was invalid and also1786was not infringed by St. Jude Medical, thereby eliminating the $140.0 million verdict against the Company. The trial court also1787made other rulings as part of the post-trial order, including a ruling that the ‘288 patent was invalid on several grounds.1788</FONT></P>17891790<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1791<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In August 2002, Guidant commenced an appeal of certain of the trial1792judge’s post-trial decisions pertaining to the ‘288 patent. Guidant did not appeal the trial court’s finding of1793invalidity and non-infringement of the ‘472 patent. As part of its appeal, Guidant requested that the monetary damages1794awarded by the jury pertaining to the ‘472 patent ($140 million) be transferred to the ‘288 patent infringement claim.1795The Company believes that such a request is not supported by the facts or law. </FONT></P>17961797<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1798<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On August 31, 2004, a three judge panel of the Court of Appeals for the1799Federal Circuit (CAFC) issued a ruling on Guidant’s appeal of the trial court decision concerning the ‘288 patent. The1800CAFC reversed the decision of the trial court judge that the ‘288 patent was invalid. The court also ruled that the trial1801judge’s claim construction of the ‘288 patent was incorrect and, therefore, the jury’s verdict of non-infringement1802was set aside. Guidant’s request to transfer the $140 million to the ‘288 patent was rejected. The court also ruled on1803other issues that were raised by the parties. The Company’s request for a re-hearing of the matter by the panel and the1804entire CAFC court was rejected. The case was returned to the District Court in Indiana in November 2004, but the Company plans to1805request the U.S. Supreme Court to review certain aspects of the CAFC decision. It is not expected that the U.S. Supreme Court1806would rule on this request until sometime during the second quarter of 2005. </FONT></P>18071808<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1809<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The ‘288 patent expired in December 2003. Accordingly, the final outcome1810of the appeal process cannot involve an injunction precluding the Company from selling ICD products in the future. Sales of the1811Company’s ICD products which Guidant asserts infringed the ‘288 patent were approximately 18% and 16% of the1812Company’s consolidated net sales during the fiscal years ended December 31, 2003 and 2002, respectively. </FONT></P>18131814<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1815<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company has not accrued any amounts for legal settlements or judgments1816related to the Guidant 1996 patent litigation. Although the Company believes that the assertions and claims in these matters are1817without merit, potential losses arising from any legal settlements or judgments are possible, but not estimable, at this time. The1818range of such losses could be material to the operations, financial position and liquidity of the Company. </FONT></P>18191820<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1821<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Guidant 2004 Patent Litigation:</I> In February 2004,1822Guidant sued the Company in federal district court in Delaware alleging that the Company’s Epic™ HF ICD, Atlas®+ HF1823ICD and Frontier™ devices infringe U.S Patent No. RE 38,119E (the ‘119 patent). Guidant also sued the Company in1824February 2004 alleging that the Company’s QuickSite® 1056K pacing lead infringes U.S. Patent No. 5,755,766 (the ‘7661825patent). This second suit was initiated in federal district court in Minnesota. Guidant is seeking an injunction against the1826manufacture and sale of these devices by the Company in the United States and compensation for what it claims are infringing sales1827of these products up through the effective date of the injunction. At the end of the second quarter 2004, the Company received FDA1828approval to market these devices in the United States. The Company has not submitted a substantive response to Guidant’s1829claims at this time. Another competitor of the Company, Medtronic, Inc., which has a license to the ‘119 patent, is1830contending in a separate lawsuit with Guidant that the ‘119 patent is invalid. </FONT></P>18311832<BR><BR>1833<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>19 </FONT></P>1834<HR SIZE=3 COLOR=GRAY NOSHADE>1835<!-- *************************************************************************** -->1836<!-- MARKER PAGE="sheet: 0; page: 0" -->1837<BR><BR>18381839<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1840<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company has not accrued any amounts for legal settlements or judgments1841related to the Guidant 2004 patent litigation. Potential losses arising from this any legal settlements or judgments are possible,1842but not estimable, at this time. The range of such losses could be material to the operations, financial position and liquidity of1843the Company. </FONT></P>18441845<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1846<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Symmetry™ Litigation:</I> As of February 25, 2005,1847there are sixteen lawsuits in the United States pending against the Company which allege that its Symmetry™ Bypass System1848Aortic Connector (Symmetry™ device) caused bodily injury or might cause bodily injury. In addition, a number of persons have1849made a claim against the Company involving the Symmetry™ device without filing a lawsuit. The first lawsuit involving the1850Symmetry™ device as filed against the Company on August 5, 2003, in federal district court for the Western District of1851Tennessee, and the most recently initiated lawsuit was served upon the Company on September 24, 2004. The sixteen cases are venued1852in state court in Minnesota, federal court for the District of Minnesota, federal court in the Western District of Tennessee,1853federal court in the Eastern District of Arkansas and federal court for the Eastern District of Pennsylvania. Each of the1854complaints in these cases request damages ranging from $50 thousand to $100 thousand and, in some cases, seek an unspecified1855amount. Four of the sixteen cases are seeking class-action status. One of the cases seeking class-action status has been1856dismissed, but the dismissal is being appealed by the plaintiff. In a second case seeking class action status, a Magistrate Judge1857has recommended that the matter not proceed as a class action, and the parties are presently awaiting the court to review the1858Magistrate’s decision. A third case seeking class action status has been indefinitely stayed by the court, and is presently1859inactive. It appears that the plaintiffs in those cases seeking class-action status seek or will seek damages for injuries and1860monitoring costs. </FONT></P>18611862<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1863<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company’s Symmetry™ device was cleared through a 510(K)1864submission to the FDA, and therefore, is not eligible for the defense under the doctrine of federal preemption that such suits are1865prohibited. Given the Company’s self-insured retention levels under its product liability insurance policies, the Company1866expects that it will be solely responsible for these lawsuits, including any costs of defense, settlements and judgments. Company1867management believes that class-action status is not appropriate for the claims asserted based on the applicable facts and law.1868</FONT></P>18691870<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1871<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>During the third quarter of 2004, the number of lawsuits involving the1872Symmetry™ device increased, and the number of persons asserting claims outside of litigation increased as well. With this1873background, the Company determined that it was probable that legal costs to defend the cases will be incurred and the amount of1874such fees was reasonably estimable. As a result, the Company recorded a pretax charge of $21.0 million in the third quarter of18752004 to reflect this liability. </FONT></P>18761877<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1878<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>No lawsuits involving the product were initiated against the Company during1879the fourth quarter of 2004, and the number of claims asserted outside of the litigation has been minimal since the third quarter1880of 2004. </FONT></P>18811882<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1883<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Potential losses arising from settlements or judgments are possible, but not1884estimable, at this time. The range of such losses could be material to the operations, financial position and liquidity of the1885Company. The Company has not accrued for any amounts associated with probable settlements or judgments because management cannot1886reasonably estimate such amounts. However, management believes that no significant claims will ultimately be allowed to proceed as1887class actions in the United States. </FONT></P>18881889<BR><BR>1890<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>20 </FONT></P>1891<HR SIZE=3 COLOR=GRAY NOSHADE>1892<!-- *************************************************************************** -->1893<!-- MARKER PAGE="sheet: 0; page: 0" -->1894<BR><BR>189518961897<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1898<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Management currently believes that any costs (the material components of1899which are settlements, judgments, legal fees and other related defense costs) not covered by its reserves will not have a material1900adverse effect on the Company’s statement of financial position or liquidity, although such costs may be material to the1901Company’s consolidated results of operations of a future period. </FONT></P>19021903<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1904<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Other Litigation Matters:</I> The Company is involved in1905various other product liability lawsuits, claims and proceedings that arise in the ordinary course of business. </FONT></P>19061907<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1908<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS </FONT></H1>19091910<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->1911<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>There were no matters submitted to a vote of security holders during the1912fourth quarter of 2004. </FONT></P>19131914191519161917<BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR>1918<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>21 </FONT></P>1919<HR SIZE=3 COLOR=GRAY NOSHADE>1920<!-- *************************************************************************** -->1921<!-- MARKER PAGE="sheet: 0; page: 0" -->1922<BR><BR>19231924<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->1925<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT </FONT></H1>192619271928<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=700>1929<TR VALIGN=Bottom>1930<TH COLSPAN=3 align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Name</FONT></TH>1931<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Age</FONT></TH><TH></TH><TH></TH>1932<TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Position*</FONT></TH></TR>1933<TR VALIGN=Bottom>1934<TH COLSPAN=9><HR SIZE=1 COLOR=BLACK NOSHADE></TH></TR>1935<TR VALIGN=Bottom>1936<TD WIDTH=22% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Daniel J. Starks</FONT></TD>1937<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1938<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1939<TD WIDTH=1% ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>50</FONT></TD>1940<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1941<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1942<TD WIDTH=70% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Chairman (2004), President (2001) and Chief Executive Officer (2004)</FONT></TD>1943<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1944<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>1945<TR><TD> </TD></TR>1946<TR VALIGN=Bottom>1947<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>John C. Heinmiller</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1948<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>50</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1949<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Executive Vice President and Chief Financial Officer (2004)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>1950<TR><TD> </TD></TR>1951<TR VALIGN=Bottom>1952<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Paul R. Buckman</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1953<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>49</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1954<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>President, Cardiology (2004)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>1955<TR><TD> </TD></TR>1956<TR VALIGN=Bottom>1957<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Michael J. Coyle</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1958<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>42</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1959<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>President, Cardiac Rhythm Management (2001)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>1960<TR><TD> </TD></TR>1961<TR VALIGN=Bottom>1962<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>George J. Fazio</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1963<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>45</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1964<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>President, Cardiac Surgery (2004)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>1965<TR><TD> </TD></TR>1966<TR VALIGN=Bottom>1967<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Joseph H. McCullough</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1968<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>55</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1969<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>President, International (2001)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>1970<TR><TD> </TD></TR>1971<TR VALIGN=Bottom>1972<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Michael T. Rousseau</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1973<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>49</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1974<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>President, US Sales (2001)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>1975<TR><TD> </TD></TR>1976<TR VALIGN=Bottom>1977<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Jane J. Song</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1978<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>42</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1979<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>President, Atrial Fibrillation (2004)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>1980<TR><TD> </TD></TR>1981<TR VALIGN=Bottom>1982<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>David C. Fetah</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1983<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>44</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1984<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vice President, Human Resources (2005)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>1985<TR><TD> </TD></TR>1986<TR VALIGN=Bottom>1987<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Peter L. Gove</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1988<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>57</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1989<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vice President, Corporate Relations (1994)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>1990<TR><TD> </TD></TR>1991<TR VALIGN=Bottom>1992<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Jeri L. Lose</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1993<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>47</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1994<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vice President, Information Technology (1999) and Chief Information Officer (2000)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>1995<TR><TD> </TD></TR>1996<TR VALIGN=Bottom>1997<TD ALIGN=LEFT nowrap><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Thomas R. Northenscold</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1998<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>47</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>1999<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vice President, Administration (2003)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>2000<TR><TD> </TD></TR>2001<TR VALIGN=Bottom>2002<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Kevin T. O’Malley</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2003<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>53</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2004<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Vice President, General Counsel and Secretary (1994)</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>2005</TABLE>2006<BR>20072008<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->2009<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> *Dates in parentheses2010indicate year during which each named executive officer began serving in such capacity. </FONT></P>201120122013<BR><BR><BR><BR><BR><BR><BR><BR><BR><BR>2014<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>22 </FONT></P>2015<HR SIZE=3 COLOR=GRAY NOSHADE>2016<!-- *************************************************************************** -->2017<!-- MARKER PAGE="sheet: 0; page: 0" -->2018<BR><BR>201920202021<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2022<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Executive officers serve at the pleasure of the Board of Directors.2023</FONT></P>20242025<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->2026<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Starks joined St. Jude in 1996 as a result of the Company’s2027acquisition of Daig Corporation, where he continued as Chief Executive Officer. In 1997, he was also appointed Chief Executive2028Officer of Cardiac Rhythm Management, and in April 1998, also became President of Cardiac Rhythm Management. He was appointed2029President and Chief Operating Officer of St. Jude in February 2001 and Chairman, President and Chief Executive Officer in May,20302004. Mr. Starks has also served on the Company’s Board of Directors since 1996. Mr. Starks serves on the Board of Directors2031of Urologix, Inc. </FONT></P>20322033<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->2034<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Heinmiller joined the Company in May 1996 as a part of the2035Company’s acquisition of Daig Corporation. Prior to joining the Company, Mr. Heinmiller was Vice President of Finance and2036Administration for Daig Corporation since 1995. In May 1998, he was named the Company’s Vice President of Corporate Business2037Development. In September 1998, he was appointed Vice President, Finance and Chief Financial Officer and in May 2004 was promoted2038to Executive Vice President. Mr. Heinmiller is also a former audit partner in the Minneapolis office of Grant Thornton LLP, a2039national public accounting firm. </FONT></P>20402041<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->2042<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Buckman joined the Company in 2004 as President of St. Jude’s2043Cardiology business. Prior to joining St. Jude Medical, he was Founder, Chairman, and CEO of ev3 LLC, a medical device company2044focused on endovascular therapies from 2001 to 2004. Mr. Buckman has worked in the medical device industry for over 30 years. Mr.2045Buckman worked for Scimed Life Systems, Inc. / Boston Scientific Corporation from 1991 to 2001, where he held several executive2046positions before becoming President of the Scimed Division in January 2000. </FONT></P>20472048<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->2049<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Coyle joined St. Jude in 1994 as Director, Business Development. He2050served as President and Chief Operating Officer of Daig from 1997 to 2001 and was appointed President, Cardiac Rhythm Management2051in February 2001. Prior to joining St. Jude, he spent nine years with Eli Lilly & Company, a pharmaceutical products company,2052in a variety of technical and business management roles in both its Pharmaceutical and Medical Device Divisions. </FONT></P>20532054<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->2055<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Fazio joined the Company in 1992 and served as the General Manager2056of St. Jude Medical Canada, Inc., based in Mississauga, Ontario, Canada, until being named President, Health Care Services May20571999. In July 2001, he was appointed President of SJM Europe and in August<B> </B>2004 was named President, Cardiac Surgery. Prior2058to St. Jude Medical, Mr. Fazio spent eight years with the Davis & Geck Division of American Home Products, promoting their2059surgical products. He served in the roles of Marketing – Product Manager, Sales Management, Sales Training, and Sales2060Representative. </FONT></P>20612062<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->2063<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. McCullough joined St. Jude in 1994 as a CRM Regional Sales Director.2064He became Director of CRM Marketing in 1996 and was named Vice President of CRM Marketing in January 1997. In December 1997, Mr.2065McCullough was appointed CRM Business Unit Director. He became Vice President, CRM Europe and Managing Director of the2066Company’s manufacturing operations in Veddesta, Sweden, in January 1999, and Senior Vice President, CRM Europe in August20671999. He was named President, International in July 2001. Prior to joining the Company, Mr. McCullough worked for several medical2068technology companies for more than 20 years. </FONT></P>20692070<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->2071<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Rousseau joined the Company in 1999 as Senior Vice President, CRM2072Global Marketing. In August 1999, CRM Marketing and Sales were combined under his leadership. In January 2001, he was named2073President, U.S. CRM Sales, and in July 2001 he was named President, US Sales. Prior to joining St. Jude, Mr. Rousseau worked for2074Sulzer Intermedics, Inc., a medical device company, for 11 years. At Sulzer, he served as Vice President, Tachycardia, in 1997 and2075was appointed Vice President, U.S. Sales and Marketing in 1998. </FONT></P>20762077<BR><BR>2078<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23 </FONT></P>2079<HR SIZE=3 COLOR=GRAY NOSHADE>2080<!-- *************************************************************************** -->2081<!-- MARKER PAGE="sheet: 0; page: 0" -->2082<BR><BR>2083208420852086<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->2087<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Ms. Song joined St. Jude in 1998 as Senior Vice President, CRM2088Operations. In May 2002 she was appointed President, Cardiac Surgery and in August<B> </B>2004 was appointed President, Atrial2089Fibrillation. Prior to joining the Company, Ms. Song was employed by Perkin Elmer (formerly EG&G, Inc.), a global technology2090company, from 1992 to 1998 where she held executive positions in global operations and business development. Prior to her tenure2091at Perkin Elmer, she was employed by Coopers & Lybrand LLP, an international public accounting firm, and Texas Instruments2092Inc., a global semiconductor company. </FONT></P>20932094<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2095<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Fetah joined the Company in February 2005 as Vice President, Human2096Resouces. Prior to joining the Company, Mr. Fetah was the Vice President, Human Resources at Western Digital Corporation from 20002097to 2005. Prior to joining the Western Digital Corporation, he served as Executive Director, Human Resources, for PeopleSoft, Inc2098from 1996 to 2000 and he was a Manager, Human Resources, for Fluor Corporation where he served from 1995 to 2000. </FONT></P>20992100<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->2101<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Gove joined the Company in 1994 as Vice President, Corporate2102Relations. Prior to joining the Company, Mr. Gove was Vice President, Marketing and Communications of Control Data Systems, Inc.,2103a computer services company, from 1991 to 1994. From 1981 to 1990, Mr. Gove held various executive positions with Control Data2104Corporation. From 1970 to 1981, Mr. Gove held various management positions with the State of Minnesota and the U.S. Government.2105Mr. Gove serves on the Board of Directors of QRS Diagnostic, LLC and Information for Public Affairs, Inc. </FONT></P>21062107<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->2108<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Ms. Lose joined St. Jude in 1999 as Vice President, Information2109Technology, and was also appointed Chief Information Officer in 2000. Prior to joining the Company, Ms. Lose was Vice President of2110Systems Development at U.S. Bancorp, a multi-state financial services holding company, from 1993 to 1999. From 1990 to 1993, Ms.2111Lose was a Senior Manager in Information Technology Consulting with Ernst & Young LLP, an international public accounting2112firm. From 1979 to 1990, she held several positions in Accounting and then Information Technology with General Mills, Inc, a2113consumer food products company. Ms. Lose serves on the Board of Directors of Apria Healthcare, Inc. </FONT></P>21142115<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->2116<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Northenscold joined St. Jude in 2001 as Vice President, Finance and2117Administration of Daig. In March 2003, he was appointed Vice President, Administration. Prior to joining the Company, Mr.2118Northenscold worked at PPT Vision, Inc., an industrial technology and automation company, where he served as Chief Financial2119Officer from February 1995 to January 1999, and Division General Manager from January 1999 to September 2001. Prior to 1995, Mr.2120Northenscold worked for Cardiac Pacemakers, Inc., a medical technology company that is now part of Guidant Corporation, in various2121finance and operations positions. </FONT></P>21222123<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->2124<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. O’Malley joined the Company in 1994 as Vice President and2125General Counsel. Since December 1996, he has also served as the Company’s Corporate Secretary. Prior to joining St. Jude, Mr.2126O’Malley was employed by Eli Lilly & Company, a pharmaceutical products company, for 15 years in various positions,2127including General Counsel of the Medical Device and Diagnostics Division. </FONT></P>212821292130<BR><BR>2131<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>24 </FONT></P>2132<HR SIZE=3 COLOR=GRAY NOSHADE>2133<!-- *************************************************************************** -->2134<!-- MARKER PAGE="sheet: 0; page: 0" -->2135<BR><BR>2136213721382139<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->2140<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART II </FONT></H1>21412142<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2143<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER2144MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES </FONT></H1>21452146<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2147<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The information set forth under the captions “Dividends” and2148“Stock Exchange Listings” in the Financial Report included in the Company’s 2004 Annual Report to Shareholders is2149incorporated herein by reference. </FONT></P>21502151<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2152<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 6. SELECTED FINANCIAL DATA </FONT></H1>21532154<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2155<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The information set forth under the caption “Five-Year Summary Financial2156Data” in the Financial Report included in the Company’s 2004 Annual Report to Shareholders is incorporated herein by2157reference. </FONT></P>21582159<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2160<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS </FONT></H1>21612162<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2163<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The information set forth under the caption “Management’s2164Discussion and Analysis of Financial Condition and Results of Operations” in the Financial Report included in the2165Company’s 2004 Annual Report to Shareholders is incorporated herein by reference. </FONT></P>21662167<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2168<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK </FONT></H1>21692170<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2171<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The information appearing under the caption “Market Risk” in the2172Financial Report included in the Company’s 2004 Annual Report to Shareholders is incorporated herein by reference.2173</FONT></P>21742175<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2176<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA </FONT></H1>21772178<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2179<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following Consolidated Financial Statements of the Company and Report of2180Independent Registered Public Accounting firm set forth in the Financial Report included in the Company’s 2004 Annual Report to Shareholders are2181incorporated herein by reference: </FONT></P>21822183<!-- MARKER FORMAT-SHEET="Para Flush Level 1" FSL="Default" -->2184<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2185<TR VALIGN=TOP>2186<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2187<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Reports of Independent Registered Public Accounting Firm2188<BR>2189<BR>Consolidated Statements of Earnings – Fiscal Years ended December 31, 2004, 2003 and 20022190<BR>2191<BR>Consolidated Balance Sheets – December 31, 2004 and 20032192<BR>2193<BR>Consolidated Statements of Shareholders’ Equity – Fiscal Years ended December 31, 2004, 2003 and 20022194<BR>2195<BR>Consolidated Statements of Cash Flows – Fiscal Years ended December 31, 2004, 2003 and 20022196<BR>2197<BR>Notes to Consolidated Financial Statements </FONT></TD>2198</TR>2199</TABLE>2200<BR>220122022203<BR><BR>2204<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>25 </FONT></P>2205<HR SIZE=3 COLOR=GRAY NOSHADE>2206<!-- *************************************************************************** -->2207<!-- MARKER PAGE="sheet: 0; page: 0" -->2208<BR><BR>22092210221122122213<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2214<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE </FONT></H1>22152216<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->2217<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>None. </FONT></P>22182219<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2220<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 9A. CONTROLS AND PROCEDURES </FONT></H1>22212222<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2223<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As of December 31, 2004, the Company carried out an evaluation, under the2224supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”)2225and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of its disclosure controls and2226procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on that2227evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of December 31,22282004 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act2229is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and2230forms. </FONT></P>22312232<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2233<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>During the fiscal quarter ended December 31, 2004, there were no changes in2234the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have2235materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.2236</FONT></P>22372238<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2239<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The annual report of the Company’s management on internal control over2240financial reporting is provided on page 26 of Exhibit 13. The attestation report of Ernst & Young LLP, the Company’s2241independent accountant, regarding the Company’s internal control over financial reporting is provided on page 27<B> </B>of2242Exhibit 13. </FONT></P>22432244<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2245<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 9B. OTHER INFORMATION </FONT></H1>22462247<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->2248<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>None. </FONT></P>22492250<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2251<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART III </FONT></H1>22522253<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2254<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT </FONT></H1>22552256<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2257<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The information set forth under the captions “Board of Directors,”2258“Section 16(a) Beneficial Ownership Reporting Compliance” and “Director Independence and Audit Committee Financial2259Expert” in the Company’s definitive proxy statement dated March 30, 2005, is incorporated herein by reference.2260Information on executive officers under Item 4A of this Form 10-K is incorporated herein by reference. </FONT></P>22612262<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2263<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company has adopted a Code of Business Conduct for its Principal2264Executive Officer, Principal Financial Officer, Principal Accounting Officer and all other employees. The Company has made its2265Code of Business Conduct available on its Web site (http://www.sjm.com) under the Company Information section “About Us”2266and is available in print to any shareholder who submits a request to St. Jude Medical, Inc., One Lillehei Plaza, St. Paul,2267Minnesota 55117, Attention: Corporate Secretary. The Company intends to satisfy the disclosure requirement under Item 5.05 of Form22688-K regarding an amendment to, or waiver from, a provision of its Code of Business Conduct by posting such information on its2269website at the address and location specified above. </FONT></P>227022712272<BR><BR>2273<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>26 </FONT></P>2274<HR SIZE=3 COLOR=GRAY NOSHADE>2275<!-- *************************************************************************** -->2276<!-- MARKER PAGE="sheet: 0; page: 0" -->2277<BR><BR>2278227922802281<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2282<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company has also made available on its website its Principles of2283Corporate Governance and the charters for each Committee of its Board of Directors. Such materials are also available in print to2284any shareholder who submits a request to St. Jude Medical, Inc., One Lillehei Plaza, St. Paul, Minnesota 55117, Attention:2285Corporate Secretary. </FONT></P>22862287<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2288<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Information included on the Company’s Web site is not deemed to be2289incorporated into this Annual Report on Form 10-K. </FONT></P>22902291<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2292<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 11. EXECUTIVE COMPENSATION </FONT></H1>22932294<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2295<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The information set forth under the captions “Executive2296Compensation” and “Compensation of Directors” (except for information under the “Report of the Compensation2297Commottee on Executive Compensation”) in the Company’s definitive proxy statement dated March 30, 2005, is incorporated2298herein by reference. </FONT></P>22992300<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2301<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS </FONT></H1>230223032304<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->2305<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>EQUITY COMPENSATION PLAN INFORMATION </FONT></H1>23062307<!-- MARKER FORMAT-SHEET="Para Indent" FSL="Default" -->2308<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> The following table provides2309information as of December 31, 2004 about the Company’s common stock that may be issued under all of its existing equity2310compensation plans, including the St. Jude Medical, Inc. 1991 Stock Plan, the St. Jude Medical, Inc. 1994 Stock Option Plan, the2311St. Jude Medical, Inc. 1997 Stock Option Plan, the St. Jude Medical, Inc. 2000 Stock Plan, the St. Jude Medical, Inc. 20002312Employee Stock Purchase Savings Plan, and the St. Jude Medical, Inc. 2002 Stock Plan, as Amended. All of these plans have been2313approved by the Company’s shareholders. </FONT></P>2314231523162317<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=700>2318<TR VALIGN=Bottom>2319<TH COLSPAN=1 align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Plan category</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH><TH></TH>2320<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Number of securities to be issued upon exercise of outstanding options, warrants and rights<BR>(a) </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH><TH></TH>2321<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Weighted-average exercise price of outstanding options, warrants and rights<BR>(b) </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH><TH></TH>2322<TH COLSPAN=1><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a))<BR>(c) </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH></TR>2323<TR VALIGN=Bottom>2324<TD WIDTH=27% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Equity compensation</FONT></TD>2325<TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2326<TD WIDTH=18% ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2327<TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2328<TD WIDTH=18% ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2329<TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2330<TD WIDTH=18% ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2331<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>2332<TR VALIGN=Bottom>2333<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>plans approved by</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>2334<TR VALIGN=Bottom>2335<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>shareholders</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2336<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>50,019,260</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2337<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$ 19.11</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2338<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,476,232<SUP>(1)</SUP></FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>2339<TR><TD> </TD></TR>2340<TR VALIGN=Bottom>2341<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Equity compensation</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>2342<TR VALIGN=Bottom>2343<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>plans not approved by</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>2344<TR VALIGN=Bottom>2345<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>shareholders </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2346<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2347<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2348<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>—</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>2349<TR>2350<TD ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>2351<TD ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>2352<TD ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>2353<TD ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>2354<TR VALIGN=Bottom>2355<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2356<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>50,019,260</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2357<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$ 19.11</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2358<TD ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5,476,232 </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>2359<TR>2360<TD ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>2361<TD ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>2362<TD ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD>2363<TD ALIGN=RIGHT><HR NOSHADE COLOR=#000000 SIZE=1></TD><TD></TD></TR>2364</TABLE>2365<BR>23662367<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><SUP>(1)</SUP> The shares available for future issuance as2368of December 31, 2004 included the following: </FONT></P>23692370<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 1" FSL="Default" -->2371<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2372<TR VALIGN=TOP>2373<TD ALIGN=RIGHT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>– </FONT></TD>2374<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2375<TD WIDTH=94%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,833,028 shares available for purchase by employees2376under the St. Jude Medical, Inc. 2000 Employee Stock Purchase Savings Plan; and </FONT></P></TD>2377</TR>2378</TABLE>2379<BR>23802381<!-- MARKER FORMAT-SHEET="Para (List) Hang Level 1" FSL="Default" -->2382<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2383<TR VALIGN=TOP>2384<TD ALIGN=RIGHT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>– </FONT></TD>2385<TD ALIGN=LEFT WIDTH=3%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2386<TD WIDTH=94%><P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>133,296 shares available under the St. Jude Medical,2387Inc. 2000 Stock Plan for restricted stock grants </FONT></P></TD>2388</TR>2389</TABLE>2390<BR>2391239223932394<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2395<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS2396</FONT></H1>23972398<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2399<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The information set forth under the caption “Related Party2400Transactions” in the Company’s definitive Proxy Statement dated March 30, 2005, is incorporated herein by reference.2401</FONT></P>24022403<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2404<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES </FONT></H1>24052406<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2407<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The information set forth under the caption “Proposal to Ratify the2408Appointment of Auditors – Independent Accountant’s Fees” in the Company’s definitive proxy statement dated2409March 30, 2005, is incorporated herein by reference. </FONT></P>241024112412<BR><BR>2413<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>27 </FONT></P>2414<HR SIZE=3 COLOR=GRAY NOSHADE>2415<!-- *************************************************************************** -->2416<!-- MARKER PAGE="sheet: 0; page: 0" -->2417<BR><BR>241824192420<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->2421<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PART IV </FONT></H1>24222423<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->2424<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES </FONT></H1>24252426<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->2427<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2428<TR VALIGN=TOP>2429<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2430<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>(a)</I> </FONT> </TD>2431<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2432<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <I>List2433of documents filed as part of this Report</I> </FONT></TD>2434</TR>2435</TABLE>2436<BR>24372438<!-- MARKER FORMAT-SHEET="Para Hang Level 2" FSL="Default" -->2439<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2440<TR VALIGN=TOP>2441<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2442<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2443<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1) </FONT></TD>2444<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2445<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Financial Statements</I> </FONT></TD>2446</TR>2447</TABLE>2448<BR>24492450<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->2451<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2452<TR VALIGN=TOP>2453<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2454<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following Consolidated Financial Statements of the Company and2455Report of Independent Registered Public Accounting Firm as set forth in the Financial Report included in the Company’s 20042456Annual Report to Shareholders are incorporated herein by reference from Exhibit 13 attached hereto: </FONT></TD>2457</TR>2458</TABLE>2459<BR>24602461<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->2462<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2463<TR VALIGN=TOP>2464<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2465<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Reports of Independent Registered Public Accounting Firm </FONT></TD>2466</TR>2467</TABLE>2468<BR>24692470<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->2471<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2472<TR VALIGN=TOP>2473<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2474<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consolidated Statements of Earnings – Fiscal Years ended2475December 31, 2004, 2003 and 2002 </FONT></TD>2476</TR>2477</TABLE>2478<BR>24792480<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->2481<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2482<TR VALIGN=TOP>2483<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2484<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consolidated Balance Sheets – December 31, 2004 and 20032485</FONT></TD>2486</TR>2487</TABLE>2488<BR>24892490<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->2491<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2492<TR VALIGN=TOP>2493<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2494<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consolidated Statements of Shareholders’ Equity – Fiscal2495Years ended December 31, 2004, 2003 and 2002 </FONT></TD>2496</TR>2497</TABLE>2498<BR>24992500<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->2501<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2502<TR VALIGN=TOP>2503<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2504<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consolidated Statements of Cash Flows – Fiscal Years ended2505December 31, 2004, 2003 and 2002 </FONT></TD>2506</TR>2507</TABLE>2508<BR>25092510<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->2511<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2512<TR VALIGN=TOP>2513<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2514<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Notes to Consolidated Financial Statements </FONT></TD>2515</TR>2516</TABLE>2517<BR>25182519<!-- MARKER FORMAT-SHEET="Para Hang Level 2" FSL="Default" -->2520<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2521<TR VALIGN=TOP>2522<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2523<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2524<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2) </FONT></TD>2525<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2526<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Financial Statement Schedule</I> </FONT></TD>2527</TR>2528</TABLE>2529<BR>25302531<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->2532<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2533<TR VALIGN=TOP>2534<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2535<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Schedule II, Valuation and Qualifying Accounts, is filed as part2536of this Annual Report on Form 10-K (see Item 15(c)). </FONT></TD>2537</TR>2538</TABLE>2539<BR>25402541<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->2542<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2543<TR VALIGN=TOP>2544<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2545<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Report of Independent Registered Public Accounting Firm with2546respect to this financial statement schedule is incorporated herein by reference from Exhibit 13 attached hereto. </FONT></TD>2547</TR>2548</TABLE>2549<BR>25502551<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->2552<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>All other financial statements and schedules not listed above have been2553omitted because the required information is included in the consolidated financial statements or the notes thereto, or is not2554applicable. </FONT></P>25552556<!-- MARKER FORMAT-SHEET="Para Hang Level 2" FSL="Default" -->2557<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2558<TR VALIGN=TOP>2559<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2560<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2561<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3) </FONT></TD>2562<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2563<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Exhibits</I> </FONT></TD>2564</TR>2565</TABLE>2566<BR>25672568<!-- MARKER FORMAT-SHEET="Para Flush Level 3" FSL="Default" -->2569<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2570<TR VALIGN=TOP>2571<TD WIDTH=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2572<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of2573certain instruments defining the rights of holders of certain long-term debt of the Company are not filed, and in lieu thereof,2574the Company agrees to furnish copies thereof to the Securities and Exchange Commission upon request. </FONT></TD>2575</TR>2576</TABLE>2577<BR>257825792580<BR><BR>2581<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>28 </FONT></P>2582<HR SIZE=3 COLOR=GRAY NOSHADE>2583<!-- *************************************************************************** -->2584<!-- MARKER PAGE="sheet: 0; page: 0" -->2585<BR><BR>258625872588<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2589<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2590<TR VALIGN=TOP>2591<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2592<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2593<TD WIDTH=10% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <U>Exhibit</U> </FONT> </TD>2594<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2595<TD WIDTH=80% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Exhibit Index</U> </FONT> </TD>2596</TR>2597</TABLE>2598<BR>25992600<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2601<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2602<TR VALIGN=TOP>2603<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2604<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2605<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2606<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2.1 </FONT></TD>2607<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2608<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Stock Purchase Agreement among St. Jude Medical, Inc., St. Jude2609Medical Japan K.K., Getz Bros. & Co. Zug Inc., Getz International, Inc. and Muller & Phipps (Japan) Ltd. dated as of September 17,26102002 (USA) is incorporated by reference from Exhibit 2.1 of the Company’s Annual Report on Form 10-K from the year ended December261131, 2003. </FONT></TD>2612</TR>2613</TABLE>2614<BR>26152616<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2617<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2618<TR VALIGN=TOP>2619<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2620<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2621<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2622<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2.2 </FONT></TD>2623<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2624<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amendment, dated as of February 20, 2003, to Stock Purchase2625Agreement among St. Jude Medical, Inc., St. Jude Medical Japan K.K., Getz Bros. & Co. Zug Inc., Getz International, Inc. and2626Muller & Phipps (Japan) Ltd. dated as of September 17, 2002 (USA) is incorporated by reference from Exhibit 2.1 of the2627Company’s Annual Report on Form 10-K from the year ended December 31, 2003. </FONT></TD>2628</TR>2629</TABLE>2630<BR>263126322633<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2634<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2635<TR VALIGN=TOP>2636<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2637<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2638<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2639<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2.3 </FONT></TD>2640<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2641<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amended and Restated Agreement and Plan of Merger, dated as of2642September 29, 2004, among the Company, Dragonfly Merger Corp., and Endocardial Solutions, Inc. is incorporated by reference from2643Exhibit 99.1 of the Company’s Current Report on Form 8-K filed dated September 29, 2004. </FONT></TD>2644</TR>2645</TABLE>2646<BR>26472648<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2649<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2650<TR VALIGN=TOP>2651<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2652<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2653<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2654<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 2.4 </FONT></TD>2655<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2656<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Stock Purchase Agreement between St. Jude Medical, Inc. and Velocimed, LLC,2657dated as of February 14, 2005. # </FONT></TD>2658</TR>2659</TABLE>2660<BR>266126622663<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2664<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2665<TR VALIGN=TOP>2666<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2667<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2668<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2669<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3.1 </FONT></TD>2670<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2671<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Articles of Incorporation, as restated as of February 25, 2005. # </FONT></TD>2672</TR>2673</TABLE>2674<BR>26752676<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2677<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2678<TR VALIGN=TOP>2679<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2680<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2681<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2682<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 3.2 </FONT></TD>2683<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2684<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Bylaws, as amended and restated as of February 25, 2005, are incorporated2685by reference from Exhibit 3.1 of the Company’s Current Report on Form 8-K dated March 2, 2005. </FONT></TD>2686</TR>2687</TABLE>2688<BR>26892690<BR><BR>2691<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>29 </FONT></P>2692<HR SIZE=3 COLOR=GRAY NOSHADE>2693<!-- *************************************************************************** -->2694<!-- MARKER PAGE="sheet: 0; page: 0" -->2695<BR><BR>269626972698<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2699<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2700<TR VALIGN=TOP>2701<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2702<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2703<TD WIDTH=10% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <U>Exhibit</U> </FONT> </TD>2704<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2705<TD WIDTH=80% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Exhibit Index</U> </FONT> </TD>2706</TR>2707</TABLE>2708<BR>27092710<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2711<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2712<TR VALIGN=TOP>2713<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2714<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2715<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2716<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4.1 </FONT></TD>2717<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2718<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Rights Agreement dated as of June 16, 1997, between the Company2719and American Stock Transfer and Trust Company, as Rights Agent, including the Certificate of Designation, Preferences and Rights2720of Series B Junior Preferred Stock is incorporated by reference from Exhibit 4 of the Company’s Quarterly Report on Form272110-Q for the quarter ended June 30, 1997. </FONT></TD>2722</TR>2723</TABLE>2724<BR>27252726<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2727<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2728<TR VALIGN=TOP>2729<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2730<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2731<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2732<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4.2 </FONT></TD>2733<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2734<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amendment, dated as of December 20, 2002, to Rights Agreement,2735dated as of June 16, 1997, is incorporated by reference from Exhibit 1 of the Company’s Current Report on Form 8-K filed on2736March 21, 2003. </FONT></TD>2737</TR>2738</TABLE>2739<BR>27402741<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2742<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2743<TR VALIGN=TOP>2744<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2745<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2746<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2747<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4.3 </FONT></TD>2748<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2749<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Multi-Year $350,000,000 Credit Agreement, dated as of September275011, 2003, among St. Jude Medical, Inc., as the Borrower, Bank of America, N.A., as Administrative Agent, L/C Issuer and Lender,2751the Bank of Tokyo-Mitsubishi, Ltd. and ABN Amro Bank N.V., as Co-Syndication Agents, Bank One, N.A. and Wells Fargo Bank, National2752Association, as Co-Documentation Agents, and the Other Lenders Party Hereto is incorporated by reference from Exhibit 4.1 of the2753Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003. </FONT></TD>2754</TR>2755</TABLE>2756<BR>27572758<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2759<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2760<TR VALIGN=TOP>2761<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2762<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2763<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2764<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4.4 </FONT></TD>2765<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2766<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Multi-Year $400,000,000 Credit Agreement, dated as of September276728, 2004, among the Company, as the Borrower, Bank of America, N.A., as Administrative Agent, L/C Issuer and Lender, the Bank of2768Tokyo-Mitsubishi, Ltd., as Syndication Agents, Bank One, NA, Wells Fargo Bank, N.A. and Suntrust Bank, as Co-Documentation Agents,2769and the other lenders party thereto. Hereto is incorporated by reference from Exhibit 4.1 of the Company’s Quarterly Report2770on Form 10-Q for the quarter ended September 30, 2004. </FONT></TD>2771</TR>2772</TABLE>2773<BR>27742775<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2776<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2777<TR VALIGN=TOP>2778<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2779<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2780<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2781<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 10.1 </FONT></TD>2782<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2783<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Form2784of Indemnification Agreement that the Company has entered into with officers and directors is incorporated by reference from2785Exhibit 10(d) of the Company’s Annual Report on Form 10-K for the year ended December 31, 1986. * </FONT></TD>2786</TR>2787</TABLE>2788<BR>27892790<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2791<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2792<TR VALIGN=TOP>2793<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2794<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2795<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2796<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 10.2 </FONT></TD>2797<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2798<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>St. Jude Medical, Inc. Management Incentive Compensation Plan is2799incorporated by reference from Exhibit 10.2 of the Company’s Annual Report on Form 10-K for the year ended December 31,28002001. * </FONT></TD>2801</TR>2802</TABLE>2803<BR>28042805<BR><BR>2806<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>30 </FONT></P>2807<HR SIZE=3 COLOR=GRAY NOSHADE>2808<!-- *************************************************************************** -->2809<!-- MARKER PAGE="sheet: 0; page: 0" -->2810<BR><BR>281128122813<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2814<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2815<TR VALIGN=TOP>2816<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2817<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2818<TD WIDTH=10% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <U>Exhibit</U> </FONT> </TD>2819<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2820<TD WIDTH=80% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Exhibit Index</U> </FONT> </TD>2821</TR>2822</TABLE>2823<BR>28242825<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2826<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2827<TR VALIGN=TOP>2828<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2829<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2830<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2831<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 10.3 </FONT></TD>2832<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2833<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Management Savings Plan dated February 1, 1995, is incorporated by2834reference from Exhibit 10.7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1994. * </FONT></TD>2835</TR>2836</TABLE>2837<BR>28382839<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2840<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2841<TR VALIGN=TOP>2842<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2843<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2844<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2845<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 10.4 </FONT></TD>2846<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2847<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Retirement Plan for members of the Board of Directors, as amended2848on March 15, 1995, is incorporated by reference from Exhibit 10.6 of the Company’s Annual Report on Form 10-K for the year2849ended December 31, 1994. * </FONT></TD>2850</TR>2851</TABLE>2852<BR>28532854<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2855<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2856<TR VALIGN=TOP>2857<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2858<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2859<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2860<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 10.5 </FONT></TD>2861<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2862<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>St. Jude Medical, Inc. 1991 Stock Plan is incorporated by2863reference from the Company’s Registration Statement on Form S-8 filed June 28, 1991 (Commission File No. 33-41459). *2864</FONT></TD>2865</TR>2866</TABLE>2867<BR>28682869<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2870<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2871<TR VALIGN=TOP>2872<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2873<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2874<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2875<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 10.6 </FONT></TD>2876<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2877<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>St. Jude Medical, Inc. 1994 Stock Option Plan is incorporated by2878reference from Exhibit 4(a) of the Company’s Registration Statement on Form S-8 filed July 1, 1994 (Commission File No.287933-54435). * </FONT></TD>2880</TR>2881</TABLE>2882<BR>28832884<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2885<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2886<TR VALIGN=TOP>2887<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2888<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2889<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2890<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 10.7 </FONT></TD>2891<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2892<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>St. Jude Medical, Inc. 1997 Stock Option Plan is incorporated by2893reference from Exhibit 4.1 of the Company’s Registration Statement on Form S-8 filed December 22, 1997 (Commission File No.2894333-42945). * </FONT></TD>2895</TR>2896</TABLE>2897<BR>28982899<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2900<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2901<TR VALIGN=TOP>2902<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2903<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2904<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2905<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 10.8 </FONT></TD>2906<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2907<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>St. Jude Medical, Inc. 2000 Stock Plan is incorporated by2908reference from Exhibit 10.9 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2001. * </FONT></TD>2909</TR>2910</TABLE>2911<BR>29122913<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2914<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2915<TR VALIGN=TOP>2916<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2917<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2918<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2919<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 10.9 </FONT></TD>2920<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2921<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>St. Jude Medical, Inc. 2000 Employee Stock Purchase Savings Plan2922is incorporated by reference from Exhibit 10.10 of the Company’s Annual Report on Form 10-K for the year ended December 31,29232001. * </FONT></TD>2924</TR>2925</TABLE>2926<BR>29272928<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2929<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2930<TR VALIGN=TOP>2931<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2932<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2933<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2934<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 10.10 </FONT></TD>2935<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2936<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amended and Restated Employment Agreement dated as of March 25,29372001, between the Company and Daniel J. Starks is incorporated by reference from Exhibit 10.17 of the Company’s Annual2938Report on Form 10-K for the year ended December 31, 2000. * </FONT></TD>2939</TR>2940</TABLE>2941<BR>29422943<BR><BR>2944<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>31 </FONT></P>2945<HR SIZE=3 COLOR=GRAY NOSHADE>2946<!-- *************************************************************************** -->2947<!-- MARKER PAGE="sheet: 0; page: 0" -->2948<BR><BR>294929502951<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2952<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2953<TR VALIGN=TOP>2954<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2955<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2956<TD WIDTH=10% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE="2"> <U>Exhibit</U> </FONT> </TD>2957<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2958<TD WIDTH=80% align=center><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Exhibit Index</U> </FONT> </TD>2959</TR>2960</TABLE>2961<BR>29622963<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2964<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2965<TR VALIGN=TOP>2966<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2967<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2968<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2969<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 10.11 </FONT></TD>2970<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2971<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Form of Severance Agreement that the Company has entered into with2972officers relating to severance matters in connection with a change in control is incorporated by reference from Exhibit 10.18 of2973the Company’s Annual Report on Form 10-K for the year ended December 31, 2001. * </FONT></TD>2974</TR>2975</TABLE>2976<BR>29772978<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2979<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2980<TR VALIGN=TOP>2981<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2982<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2983<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2984<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 10.12 </FONT></TD>2985<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2986<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Amended and Restated Employment Agreement dated as of March 25,29872001, between the Company and Terry L. Shepherd is incorporated by reference from Exhibit 10.19 of the Company’s Annual2988Report on Form 10-K for the year ended December 31, 2000. * </FONT></TD>2989</TR>2990</TABLE>2991<BR>29922993<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->2994<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>2995<TR VALIGN=TOP>2996<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2997<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2998<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>2999<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 10.13 </FONT></TD>3000<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3001<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>St. Jude Medical, Inc. 2002 Stock Plan, as Amended, is3002incorporated by reference from Exhibit 10.14 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,30032002. * </FONT></TD>3004</TR>3005</TABLE>3006<BR>30073008<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->3009<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>3010<TR VALIGN=TOP>3011<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3012<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3013<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3014<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 10.14 </FONT></TD>3015<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3016<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>St. Jude Medical, Inc. Non-Qualified Stock Option Agreement. *#</FONT></TD>3017</TR>3018</TABLE>3019<BR>30203021<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->3022<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>3023<TR VALIGN=TOP>3024<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3025<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3026<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3027<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 13 </FONT></TD>3028<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3029<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Portions of the Company’s 2004 Annual Report to3030Shareholders. # </FONT></TD>3031</TR>3032</TABLE>3033<BR>30343035<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->3036<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>3037<TR VALIGN=TOP>3038<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3039<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3040<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3041<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 21 </FONT></TD>3042<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3043<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Subsidiaries of the Registrant. # </FONT></TD>3044</TR>3045</TABLE>3046<BR>30473048<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->3049<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>3050<TR VALIGN=TOP>3051<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3052<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3053<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3054<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 23 </FONT></TD>3055<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3056<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent of Independent Registered Public Accounting Firm. # </FONT></TD>3057</TR>3058</TABLE>3059<BR>30603061<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->3062<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>3063<TR VALIGN=TOP>3064<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3065<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3066<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3067<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 24 </FONT></TD>3068<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3069<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Power of Attorney. # </FONT></TD>3070</TR>3071</TABLE>3072<BR>30733074<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->3075<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>3076<TR VALIGN=TOP>3077<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3078<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3079<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3080<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 31.1 </FONT></TD>3081<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3082<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certification of Chief Executive Officer Pursuant to Section 3023083of the Sarbanes-Oxley Act of 2002. # </FONT></TD>3084</TR>3085</TABLE>3086<BR>30873088<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->3089<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>3090<TR VALIGN=TOP>3091<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3092<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3093<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3094<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 31.2 </FONT></TD>3095<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3096<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certification of Chief Financial Officer Pursuant to Section 3023097of the Sarbanes-Oxley Act of 2002. # </FONT></TD>3098</TR>3099</TABLE>3100<BR>31013102<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->3103<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>3104<TR VALIGN=TOP>3105<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3106<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3107<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3108<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 32.1 </FONT></TD>3109<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3110<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certification of Chief Executive Officer Pursuant to Section 9063111of the Sarbanes-Oxley Act of 2002. # </FONT></TD>3112</TR>3113</TABLE>3114<BR>31153116<!-- MARKER FORMAT-SHEET="Para Hang Level 3" FSL="Default" -->3117<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>3118<TR VALIGN=TOP>3119<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3120<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3121<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3122<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 32.2 </FONT></TD>3123<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3124<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certification of Chief Financial Officer Pursuant to Section 9063125of the Sarbanes-Oxley Act of 2002. # </FONT></TD>3126</TR>3127</TABLE>3128<BR>31293130<P>_________________ </P>3131<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>3132<TR VALIGN=TOP>3133<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3134<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>* Management contract or compensatory plan or arrangement.3135<BR># Filed as an exhibit to this Annual Report on Form 10-K. </FONT></TD>3136</TR>3137</TABLE>3138<BR>313931403141<BR><BR>3142<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>32 </FONT></P>3143<HR SIZE=3 COLOR=GRAY NOSHADE>3144<!-- *************************************************************************** -->3145<!-- MARKER PAGE="sheet: 0; page: 0" -->3146<BR><BR>3147314831493150315131523153<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->3154<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>3155<TR VALIGN=TOP>3156<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3157<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b) </FONT></TD>3158<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3159<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Exhibits:</I> Reference is made to Item 15(a)(3). </FONT></TD>3160</TR>3161</TABLE>3162<BR>31633164<!-- MARKER FORMAT-SHEET="Para Hang Level 1" FSL="Default" -->3165<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>3166<TR VALIGN=TOP>3167<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3168<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(c) </FONT></TD>3169<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3170<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Schedules: </FONT></TD>3171</TR>3172</TABLE>3173<BR>31743175<!-- MARKER FORMAT-SHEET="Head Major Center Bold" FSL="Default" -->3176<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS3177<BR>(In thousands) </FONT></H1>317831793180<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=700>3181<TR VALIGN=Bottom>3182<TH COLSPAN=1 ROWSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Description </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH><TH></TH><TH></TH>3183<TH COLSPAN=2 ROWSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Balance at<BR>Beginning<BR>of Year </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH><TH></TH>3184<TH COLSPAN=5><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Additions </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH><TH></TH>3185<TH COLSPAN=5><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Deductions </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH></TR>3186<TR VALIGN=Bottom>3187<TH COLSPAN=5><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>3188<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Charged to<BR>Expense </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH><TH></TH>3189<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Other (1) </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH><TH></TH>3190<TH COLSPAN=2 nowrap><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Write-offs (2) </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH><TH></TH>3191<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Other (1) </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH><TH></TH>3192<TH COLSPAN=2><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Balance at<BR>End of Year </FONT><HR SIZE=1 COLOR=BLACK NOSHADE></TH></TR>3193<TR VALIGN=Bottom>3194<TD WIDTH=31% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Allowance for doubtful accounts</FONT></TD>3195<TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3196<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3197<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=6% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3198<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3199<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=6% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3200<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3201<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=6% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3202<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3203<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=6% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3204<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3205<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=6% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3206<TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3207<TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD WIDTH=6% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3208<TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>3209<TR VALIGN=Bottom>3210<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Fiscal Year Ended:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>3211<TR VALIGN=Bottom>3212<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> December 31, 2004</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3213<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 31,905</FONT></TD>3214<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3215<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4,380</FONT></TD>3216<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3217<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> —</FONT></TD>3218<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3219<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (2,477</FONT></TD>3220<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>3221<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (2,525</FONT></TD>3222<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>3223<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 31,283</FONT></TD>3224<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>3225<TR VALIGN=Bottom>3226<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> December 31, 2003</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3227<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 24,078</FONT></TD>3228<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3229<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 5,497</FONT></TD>3230<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3231<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 4,564</FONT></TD>3232<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3233<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (2,234</FONT></TD>3234<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>3235<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> —</FONT></TD>3236<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3237<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 31,905</FONT></TD>3238<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>3239<TR VALIGN=Bottom>3240<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> December 31, 2002</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3241<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 17,210</FONT></TD>3242<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3243<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 9,188</FONT></TD>3244<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3245<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 1,752</FONT></TD>3246<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3247<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> (4,072</FONT></TD>3248<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>3249<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> —</FONT></TD>3250<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD>3251<TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> 24,078</FONT></TD>3252<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>3253</TABLE>3254<BR>325532563257<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->3258<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1) In 2004, $640 of this amount represents the3259effects of changes in foreign currency translation, and the remainder represents a reduction in the allowance for doubtful3260accounts. In 2003, $3,622 of this amount represents the balance recorded as part of our 2003 acquisition of Getz Japan, and the3261remainder represents the effects of changes in foreign currency translation. In 2002 all amounts represent the effects of changes3262in foreign currency translation. </FONT></P>32633264<!-- MARKER FORMAT-SHEET="Para (List) Indent" FSL="Default" -->3265<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2) Uncollectible accounts written off, net of3266recoveries. </FONT></P>32673268326932703271<BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR>3272<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>33 </FONT></P>3273<HR SIZE=3 COLOR=GRAY NOSHADE>3274<!-- *************************************************************************** -->3275<!-- MARKER PAGE="sheet: 0; page: 0" -->3276<BR><BR>327732783279<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->3280<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SIGNATURES </FONT></P>328132823283<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->3284<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pursuant to the requirements of Sections 13 or 15(d) of the Securities3285Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly3286authorized. </FONT></P>32873288<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=600>3289<TR VALIGN=Bottom>3290<TD WIDTH=40% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3291<TD WIDTH=60% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ST. JUDE MEDICAL, INC.</FONT></TD></TR>3292<Tr><td> </td></tr>3293<TR VALIGN=Bottom>3294<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Date: March 11, 2005</FONT></TD>3295<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2">By <U>/s/ DANIEL J. STARKS</U> </FONT></TD></TR>3296<TR VALIGN=Bottom>3297<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3298<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Daniel J. Starks </FONT></TD></TR>3299<TR VALIGN=Bottom>3300<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3301<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Chairman, President and Chief Executive Officer</I> </FONT></TD></TR>3302<TR VALIGN=Bottom>3303<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3304<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>(Principal Executive Officer)</I> </FONT></TD></TR>3305<Tr><td> </td></tr>3306<TR VALIGN=Bottom>3307<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3308<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2">By <U>/s/ JOHN C. HEINMILLER</U> </FONT></TD></TR>3309<TR VALIGN=Bottom>3310<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3311<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>John C. Heinmiller</FONT></TD></TR>3312<TR VALIGN=Bottom>3313<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3314<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Executive Vice President and</I> </FONT></TD></TR>3315<TR VALIGN=Bottom>3316<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3317<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>Chief Financial Officer</I> </FONT></TD></TR>3318<TR VALIGN=Bottom>3319<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>3320<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><I>(Principal Financial and Accounting Officer)</I> </FONT></TD></TR>3321</TABLE>3322<BR>33233324<!-- MARKER FORMAT-SHEET="Para Large Indent" FSL="Default" -->3325<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pursuant to the requirements of the Securities Exchange Act of 1934,3326this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on the332711th day of March, 2005. </FONT></P>332833293330<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=300>3331<TR VALIGN=Bottom>3332<TD WIDTH=77% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>/s/ DANIEL J. STARKS</U> </FONT></TD>3333<TD WIDTH=23% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>3334<TR VALIGN=Bottom>3335<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Daniel J. Starks</FONT></TD></TR>3336<TR VALIGN=Bottom>3337<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR><U>/s/ KEVIN T. O’MALLEY</U> </FONT></TD>3338<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Directors</FONT></TD></TR>3339<TR VALIGN=Bottom>3340<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Kevin T. O’Malley</FONT></TD></TR>3341<TR VALIGN=Bottom>3342<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><BR>as attorney-in-fact for: </FONT></TD>3343<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> </FONT></TD></TR>3344<TR VALIGN=Bottom>3345<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Richard R. Devenuti, </FONT></TD>3346<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>3347<TR VALIGN=Bottom>3348<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Stuart M. Essig, </FONT></TD>3349<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>3350<TR VALIGN=Bottom>3351<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Thomas H. Garrett III, </FONT></TD>3352<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>3353<TR VALIGN=Bottom>3354<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Michael A. Rocca, </FONT></TD>3355<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>3356<TR VALIGN=Bottom>3357<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2">David A. Thompson, </FONT></TD>3358<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>3359<TR VALIGN=Bottom>3360<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Wendy L. Yarno, and </FONT></TD>3361<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>3362<TR VALIGN=Bottom>3363<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Frank C-P Yin </FONT></TD>3364<TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD></TR>3365</TABLE>3366<BR>336733683369<BR><BR><BR><BR>3370<P ALIGN="CENTER"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>34 </FONT></P>3371<HR SIZE=3 COLOR=GRAY NOSHADE>3372337333743375</BODY>3376</HTML>3377</TEXT>3378</DOCUMENT>3379<DOCUMENT>3380<TYPE>EX-2.43381<SEQUENCE>23382<FILENAME>stjude051052_ex2-4.txt3383<TEXT>338433853386EXHIBIT 2.43387338833893390339133923393339433953396339733983399STOCK PURCHASE AGREEMENT3400340134023403BETWEEN3404340534063407ST. JUDE MEDICAL, INC.,340834093410AND341134123413VELOCIMED, LLC,3414341534163417DATED AS OF FEBRUARY 14, 200534183419<PAGE>34203421TABLE OF CONTENTS3422-----------------34233424STOCK PURCHASE AGREEMENT3425------------------------34263427PAGE3428----34293430RECITALS: 1343134323433ARTICLE I - PURCHASE AND SALE.................................................134343435Section 1.1 Purchase and Sale of the Shares....................13436Section 1.2 Holdback Amount....................................23437Section 1.3 Contingent Consideration...........................23438Section 1.4 Further Assurances.................................83439Section 1.5 Closing............................................934403441ARTICLE II - REPRESENTATIONS AND WARRANTIES OF BUYER..........................934423443Section 2.1 Organization, Standing and Power...................93444Section 2.2 Authority..........................................93445Section 2.3 Consents and Approvals; No Violation..............1034463447ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................1134483449Section 3.1 Organization, Standing and Power..................113450Section 3.2 Capital Structure.................................123451Section 3.3 Authority.........................................133452Section 3.4 Consents and Approvals; No Violation..............133453Section 3.5 Financial Statements..............................143454Section 3.6 No Default........................................153455Section 3.7 Absence of Certain Changes or Events..............153456Section 3.8 Permits and Compliance............................163457Section 3.9 Tax Matters.......................................183458Section 3.10 Actions and Proceedings...........................193459Section 3.11 Certain Agreements................................193460Section 3.12 ERISA.............................................213461Section 3.13 Compliance with Worker Safety Laws................233462Section 3.14 Products..........................................233463Section 3.15 Labor Matters.....................................233464Section 3.16 Intellectual Property.............................243465Section 3.17 Business Combination..............................283466Section 3.18 Accounts Receivable...............................283467Section 3.19 Inventories.......................................283468Section 3.20 Environmental Matters.............................283469Section 3.21 Suppliers and Distributors........................303470Section 3.22 Insurance.........................................3034713472i34733474<PAGE>34753476TABLE OF CONTENTS3477(CONTINUED)34783479Page3480----34813482Section 3.23 Transactions with Affiliates......................303483Section 3.24 Accuracy of Information...........................313484Section 3.25 Title to and Sufficiency of Assets................313485Section 3.26 Brokers...........................................323486Section 3.27 Controls and Procedures...........................323487Section 3.28 Certain Business Practices........................3234883489ARTICLE IV - COVENANTS RELATING TO CONDUCT OF BUSINESS.......................3234903491Section 4.1 Conduct of Business by the Company Pending3492the Closing.......................................323493Section 4.2 Conduct of the Business During the Contingent3494Consideration Period..............................3734953496ARTICLE V - ADDITIONAL AGREEMENTS............................................4334973498Section 5.1 Access to Information.............................433499Section 5.2 Fees and Expenses.................................443500Section 5.3 No Solicitation or Negotiation....................453501Section 5.4 Cooperation.......................................453502Section 5.5 Intercompany Accounts; Indebtedness...............463503Section 5.6 Intercompany Arrangements.........................463504Section 5.7 Public Announcements..............................473505Section 5.8 Notification of Certain Matters...................473506Section 5.9 Company Option Plans..............................473507Section 5.10 Non Compete Agreement.............................493508Section 5.11 Warrant Agreement.................................493509Section 5.12 Member Agreement..................................493510Section 5.13 Assignment by the Company.........................493511Section 5.14 Invoices Received by the Company after the3512Closing...........................................5035133514ARTICLE VI - INDEMNIFICATION.................................................5035153516Section 6.1 General Survival..................................503517Section 6.2 Indemnification in General........................513518Section 6.3 Manner of Indemnification.........................523519Section 6.4 Notice of Claims..................................523520Section 6.5 Third-Party Claims................................533521Section 6.6 Waiver of Defenses................................533522Section 6.7 Treatment of Indemnity Payments...................533523Section 6.8 Limits on Indemnification.........................5335243525ii35263527<PAGE>35283529TABLE OF CONTENTS3530(CONTINUED)35313532Page3533----35343535ARTICLE VII - CONDITIONS PRECEDENT TO THE CLOSING............................5435363537Section 7.1 Conditions to Each Party's Obligation to Effect3538the Closing.......................................543539Section 7.2 Conditions to Obligation of the Company to Effect3540the Closing.......................................553541Section 7.3 Conditions to Obligations of Buyer and Sub to3542Effect the Closing................................5535433544ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER.............................5735453546Section 8.1 Termination.......................................573547Section 8.2 Effect of Termination.............................583548Section 8.3 Amendment.........................................583549Section 8.4 Waiver............................................5835503551ARTICLE IX - GENERAL PROVISIONS..............................................5935523553Section 9.1 Notices...........................................593554Section 9.2 Interpretation....................................603555Section 9.3 Counterparts; Facsimile Signatures................613556Section 9.4 Entire Agreement; No Third-Party Beneficiaries....613557Section 9.5 Governing Law.....................................613558Section 9.6 Dispute Resolution................................613559Section 9.7 Waivers...........................................623560Section 9.8 Assignment........................................633561Section 9.9 Severability......................................633562Section 9.10 Descriptive Headings..............................633563Section 9.11 Defined Terms.....................................633564356535663567356835693570357135723573357435753576iii35773578<PAGE>35793580LIST OF EXHIBITS3581----------------35823583Exhibit A - Form of Contingent Consideration Confidentiality3584Agreement.............................................Section 4.2(d)358535863587Exhibit B - Form of Opinion of General Counsel of Buyer...........Section 7.2(b)358835893590Exhibit C - Form of Opinion of Oppenheimer, Wolff & Donnelly LLP..Section 7.3(c)35913592359335943595359635973598359936003601360236033604360536063607360836093610361136123613361436153616361736183619362036213622iv3623<PAGE>36243625STOCK PURCHASE AGREEMENT3626------------------------36273628This Stock Purchase Agreement, dated as of February 14, 2005 (this3629"Agreement"), is between St. Jude Medical, Inc., a Minnesota corporation3630("Buyer") and Velocimed, LLC, a Delaware limited liability company (the3631"Company").36323633RECITALS:36343635A. The Company owns 100% of the issued and outstanding capital stock of3636each of: (i) Velocimed, Inc., a Delaware corporation ("INC"), (ii) Velocimed3637PFO, Inc., a Delaware corporation ("PFO"), and (iii) Velocimed DMC, Inc., a3638Delaware corporation ("DMC" and together with INC and PFO, collectively the3639"Company Subs" and each individually a "Company Sub"). Such capital stock is3640herein collectively referred to as the "Shares".36413642B. The Company wishes to sell to Buyer and Buyer wishes to purchase3643from the Company, the Shares.36443645C. As an essential inducement for Buyer and Sub to enter into this3646Agreement, certain employees of the Company have entered into employment3647agreements (the "Employment Agreements") and certain consultants of the Company3648have entered into consulting agreements concurrently herewith (the "Consulting3649Agreements").36503651D. The parties acknowledge that they have different views on the3652potential for future revenues of the Company Products and therefore have agreed3653to use the Contingent Consideration that is potentially payable on the terms set3654forth herein as a means of agreeing on a value for the Company Subs and their3655future revenue potential.36563657NOW, THEREFORE, in consideration of the premises, representations,3658warranties and agreements herein contained, the parties agree as follows:36593660ARTICLE I -3661PURCHASE AND SALE36623663SECTION 1.1 PURCHASE AND SALE OF THE SHARES. Upon the terms and3664subject to the conditions hereof, the Company shall sell, assign, transfer,3665convey and deliver the Shares to Buyer, free and clear of all Encumbrances, and3666Buyer, in reliance on the representations, warranties and covenants of the3667Company contained herein, shall purchase the Shares from the Company in exchange3668for:36693670(a) an amount of cash equal to $82,500,000, subject to3671adjustment pursuant to Section 4.1(b)(viii), (the "Cash Purchase Price"), plus36723673(b) future payments of up to an aggregate of $180,000,000 in3674cash, upon achievement of certain milestones as set forth in Section 1.3 hereof3675(the36763677<PAGE>36783679"Contingent Consideration" and together with the Cash Purchase Price, the "Total3680Consideration").36813682SECTION 1.2 HOLDBACK AMOUNT. On the Closing Date, Buyer shall3683withhold $5,000,000 of the Cash Purchase Price that would have otherwise been3684payable to the Company pursuant to the terms of this Agreement (the "Holdback3685Amount") to be held by Buyer in accordance with the terms of this Section in3686order to satisfy any claims pursuant to Article VI hereof. After full3687satisfaction of any claims for Indemnification made in accordance with Article3688VI, Buyer shall pay and distribute to the Company the remaining Holdback Amount3689plus interest thereon at the rate of 3.5% percent per annum, if any, by the3690forty-fifth day following the Holdback Termination Date (subject to any3691extension for any pending claims as provided in Article VI).36923693SECTION 1.3 CONTINGENT CONSIDERATION.36943695(a) Contingent Consideration Generally.36963697(i) Contingent Consideration as part of Total3698Consideration. The parties acknowledge and agree that the Company's achievement3699of certain revenue and product development targets are material factors in3700determining the valuation of the Company by Buyer. The Contingent Consideration3701payable pursuant to this Section 1.3 does not constitute payment for services,3702but rather constitutes part of the Total Consideration and shall be treated as3703such for all purposes, including for tax purposes. Payment of the Contingent3704Consideration shall be subject to achievement of the revenue targets set forth3705in Section 1.3(c) and/or the Premere Approval milestones set forth in Section37061.3(d).37073708(ii) Forfeited Amounts. Any Contingent Consideration3709that is not earned pursuant to this Section 1.3 will be cancelled and deemed3710forfeited and retained permanently by Buyer.37113712(iii) Contingent Consideration Not Transferable. The3713Company may not sell, exchange, transfer or otherwise dispose of its right to3714receive any portion of the Contingent Consideration. Any purported transfer in3715violation of this Section 1.3(a)(iii) shall be null and void and shall not be3716recognized.37173718(iv) Support from Buyer. During the period from the3719Closing to the end of the Target Periods (such period, the "Contingent3720Consideration Period"), Buyer shall provide support in connection with the3721Company Products in accordance with the provisions of Section 4.2 hereof.37223723(b) Definitions. For purposes of this Agreement:37243725(i) "Buyer Licensing" means the revenue attributable to3726the licensing by Buyer of any Velocimed Intellectual Property calculated in3727accordance with the provisions of Section 4.2(c)(iv) hereof.37283729373023731<PAGE>37323733(ii) "Company Products" means (A) the Premere Product,3734(B) the Proxis Product, and (C) the Venture Product.37353736(iii) "Contingent Consideration Distribution Date"3737means, (A) with respect to any Contingent Consideration due and payable pursuant3738to Section 1.3(c), the ninetieth day following the end of the applicable Fiscal3739Year, and (B) with respect to any Contingent Consideration due and payable3740pursuant to Section 1.3(d), the thirtieth day after Buyer has received written3741notice from the FDA of obtaining the Premere Approval.37423743(iv) "Contingent Consideration Notice" means either a3744Revenue Notice or a Premere Approval Notice, as applicable.37453746(v) "Distal Device" means a device designed for distal3747embolic protection unless such device is specifically labeled for carotid use3748only.37493750(vi) "FDA" means the United States Food and Drug3751Administration.37523753(vii) "Fiscal Year" means any of FY 2006, FY 2007, or3754FY 2008.37553756(viii) "FY 2006" means Buyer's 2006 fiscal year.37573758(ix) "FY 2006 Target" means $30,000,000.37593760(x) "FY 2007" means Buyer's 2007 fiscal year.37613762(xi) "FY 2007 Target" means $50,000,000.37633764(xii) "FY 2008" means Buyer's 2008 fiscal year.37653766(xiii) "FY 2008 Target" means $70,000,000.37673768(xix) "Premere Product" means the device designed for3769transcatheter closure of a PFO (patent foramen ovale) currently being developed3770by the Company Subs, together with all improvements and modifications thereof3771that, but for the ownership of any Velocimed Intellectual Property, would3772infringe on such Velocimed Intellectual Property.37733774(xv) "Premere Approval" means the approval for marketing3775by the FDA under valid pre-market approval applications in accordance with 213776U.S.C. ss. 360e and 21 C.F.R. Part 814 ("PMA's") of the Premere Product.37773778(xvi) "Premere First Target Period" means the period3779from the Closing until June 30, 2009.37803781378233783<PAGE>37843785(xvii) "Premere Second Target Period" means the period3786from and including July 1, 2009 to and including December 31, 2009.37873788(xviii) "Premere Third Target Period" means the period3789from and including January 1, 2010 to and including December 31, 2010.37903791(xix) "Proxis Product" means either or both of the two3792devices designed for flow control or embolic protection currently being3793developed by the Company Subs, together with all improvements and modifications3794thereof that would, but for the ownership of any Velocimed Intellectual3795Property, would infringe on such Velocimed Intellectual Property.37963797(xx) "Revenue" means revenue of Buyer or its3798Subsidiaries derived from (A) any of the Company Products, (B) any other product3799manufactured or sold by Buyer that, but for the ownership of any Velocimed3800Intellectual Property, would infringe on such Velocimed Intellectual Property3801(other than a Distal Device), (C) any Distal Device sold by Buyer (calculated in3802accordance with Section 4.2(c)(v)), less, in all cases, (X) transportation,3803insurance and handling expenses if separately stated on the invoice, (Y) any3804credits or allowances granted with respect to such Company Product in the3805ordinary course of business to customers, including, without limitation, credits3806and allowances on account of price adjustments, returns, discounts, and3807charge-backs, and (Z) any sales, excise, value-added, turnover or similar Taxes3808and any duties and other governmental charges imposed on the importation, use or3809sale of a Company Product; PROVIDED, HOWEVER, that revenue from Bundled Sales or3810sales made through distributors in foreign jurisdictions shall be calculated in3811accordance with the provisions of Section 4.2(c) hereof, or (D) Buyer Licensing3812(calculated in accordance with Section 4.2(c)(iv)).38133814(xxi) "Target Periods" shall refer to the Premere First3815Target Period, the Premere Second Target Period, and the Premere Third Target3816Period, collectively, and a "Target Period" shall refer to any one of them3817individually.38183819(xxii) "Velocimed Intellectual Property" means the3820Company Registered IP, both in the U.S. and in foreign jurisdictions, except3821that that no element of Intellectual Property will be considered Velocimed3822Intellectual Property if it is determined to be invalid, provided that any issue3823of invalidity must be based upon claims asserted by a third party. In the event3824such a third party claim is asserted and the parties cannot agree upon such3825determination, such determination solely for purposes of this Agreement shall be3826resolved pursuant to Section 9.6 hereof. On the question of validity of3827Velocimed Intellectual Property, the arbitrator will be bound by the decision of3828any court.38293830(xxiii) "Venture Product" means the deflectable3831intra-vascular catheter currently being developed by the Company Subs, together3832with all improvements and modifications thereof that would, but for the3833ownership of any Velocimed Intellectual Property, would infringe on such3834Velocimed Intellectual Property.3835383643837<PAGE>38383839(c) Revenue-Based Contingent Consideration. The Company3840shall become entitled to the applicable Contingent Consideration specified below3841upon Buyer's achievement of the Revenue targets set forth below in Section38421.3(c)(i) and (ii) as may be limited by Section 1.3(c)(iii). Any such payments3843are referred to herein as "Revenue-Based Contingent Consideration".38443845(i) Revenue-Based Payments:38463847(A) An amount equal to 50% of the Revenue in FY 20063848that is in excess of the FY 2006 Target shall become earned in respect of FY38492006.38503851(B) An amount equal to 50% of the Revenue in FY 20073852that is in excess of the FY 2007 Target shall become earned in respect of FY38532007.38543855(C) An amount equal to 50% of the Revenue in FY 20083856that is in excess of the FY 2008 Target shall become earned in respect of FY38572008; PROVIDED, HOWEVER, that if an Alternate Payment is determined to be due3858and payable, that no Contingent Consideration shall be due and payable pursuant3859to this Section 1.3(c)(i)(C) and instead shall be calculated in accordance with3860Section 1.3(c)(ii).38613862(ii) Alternate Payment. If an amount equal to 50% of3863Revenue in FY 2008 in excess of $30,000,000 exceeds the sum of (A) all payments3864previously made pursuant to Sections 1.3(c)(i)(A) and 1.3(c)(i)(B) plus (B) the3865payment that would, but for the operation of this 1.3(c)(ii), be payable3866pursuant to Section 1.3(c)(i)(C), then an Alternate Payment shall be earned in3867respect of FY 2008 in lieu of any amount that would otherwise be due and payable3868pursuant to Section 1.3(c)(i)(C). The "Alternate Payment" shall be in an amount3869equal to (X) 50% of Revenue in FY 2008 in excess of $30,000,000, less (Y) the3870sum of all payments previously made pursuant to Sections 1.3(c)(i)(A) and38711.3(c)(i)(B).38723873(iii) Limitations on Revenue-Based Contingent3874Consideration. The amount of all payments made pursuant to this Section 1.3(c)3875shall not exceed $100,000,000.38763877(d) Premere Approval-Based Contingent Consideration. The3878Company shall become entitled to the applicable Contingent Consideration3879specified below upon Buyer's attainment of any of the specified milestones as3880follows:38813882(i) An amount equal to $80,000,000 shall become earned3883pursuant to this Section 1.3(d) if the Premere Approval is obtained during the3884Premere First Target Period.38853886(ii) An amount equal to $65,000,000 shall become earned3887pursuant to this Section 1.3(d) if the Premere Approval is obtained during the3888Premere Second Target Period and an amount equal to $15,000,000 of the3889Contingent Consideration shall be cancelled and deemed forfeited by the Company.3890389153892<PAGE>38933894(iii) An amount equal to $50,000,000 shall become earned3895pursuant to this Section 1.3(d) if the Premere Approval is obtained during the3896Premere Third Target Period and an amount equal to $30,000,000 of the Contingent3897Consideration shall be cancelled and deemed forfeited by the Company.38983899(iv) If the Premere Approval is not achieved prior to3900the end of the Premere Third Target Period, then no Contingent Consideration3901shall ever become earned or become due and payable with respect to the Premere3902Approval and an amount equal to $80,000,000 of the Contingent Consideration3903shall be cancelled and deemed forfeited by the Company.39043905Any Contingent Consideration that becomes due and payable pursuant to this3906Section 1.3(d) is referred to herein as "Premere Approval-Based Contingent3907Consideration".39083909(e) Contingent Consideration Distributions; Company3910Objections.39113912(i) Distribution of Contingent Consideration. Subject to3913the rights of set-off set forth in Section 1.3(e)(vi) and Article VI, Buyer3914shall pay and distribute to the Company the Contingent Consideration to which3915the Company is entitled pursuant to Section 1.3(c) or Section 1.3(d), if any, by3916the applicable Contingent Consideration Distribution Date.39173918(ii) Revenue-Based Contingent Consideration Notice.3919Within forty-five days after the end of any Fiscal Year, Buyer shall deliver to3920the Company a notice (a "Revenue Notice") specifying (A) the amount of Revenue3921(listed by product or revenue source) earned in the preceding Fiscal Year, (B)3922whether any Contingent Consideration is due and payable pursuant to Section39231.3(c) related to such preceding Fiscal Year, (C) if applicable, any proposed3924setoff for Losses in accordance with Section 1.3(e)(vi) or Article VI, and (D)3925the net amount, if any, to be distributed to the Company with respect to such3926Revenue-Based Contingent Consideration on the relevant Contingent Consideration3927Distribution Date, if applicable. Following receipt of the Revenue Notice, the3928Company and its advisors shall have the right to review the accounting and3929financial records reflecting unit sales by Company Product and unit sales by3930country that comprise the basis for the Revenue determination and to meet and3931discuss such Revenue determination with the persons who prepared the Revenue3932Notice. Buyer shall provide such records to the Company within 5 days of any3933written request by the Company for such records and shall arrange for such a3934meeting with the persons who prepared the Revenue Notice within 10 days of any3935written request therefor.39363937(iii) Premere Approval-Based Contingent Consideration3938Notice. Within ten days after Buyer has received written notice from the FDA of3939obtaining the Premere Approval, Buyer shall deliver to the Company a notice (the3940"Premere Approval Notice") specifying (A) the amount of Contingent Consideration3941due and payable pursuant to Section 1.3(d), (B) if applicable, any proposed3942setoff for Losses in accordance with Section 1.3(e)(vi) or Article VI, and (C)3943the net amount, if any, to be39443945394663947<PAGE>39483949distributed to the Company with respect to the Premere Approval on the relevant3950Contingent Consideration Distribution Date.39513952(iv) Company Objection. The Company shall have thirty3953days after the giving of any Contingent Consideration Notice to make an3954objection (in writing) to any item in a Contingent Consideration Notice,3955specifying in reasonable detail the item objected to and the basis for such3956objection (the "Notice of Objection"). If a timely Notice of Objection is not3957received or to the extent an item is not objected to in the Notice of Objection,3958the Contingent Consideration Notice and the portion of the Contingent3959Consideration to be paid shall be deemed to have been accepted and final and3960binding on the parties, absent manifest error. If the Company delivers a timely3961Notice of Objection to the Contingent Consideration Notice, Buyer and the3962Company shall resolve such conflict in accordance with the procedures set forth3963in Section 1.3(e)(v). The Company may also, within such thirty-day period,3964provide Buyer with a written request that an audit be performed with regard to3965the calculation of the Revenue in the Revenue Notice. If the Company requests3966such an audit, the Company will be permitted to engage an independent auditing3967firm of national standing, with no conflict of interest with Buyer, to conduct3968an audit of the Revenue calculation, provided that such audit firm enters into a3969customary form of confidentiality agreement with Buyer with respect to the3970information furnished to them in such audit. The Company will pay for the costs3971and expenses of such audit, provided, however, that if the amount of3972Revenue-based Contingent Consideration ultimately determined hereunder to be due3973exceeds the amount thereof set forth in the Revenue Notice by more than 5% of3974the amount ultimately determined to be due, the Buyer will reimburse the Company3975for the reasonable costs and expenses of such audit. In the event of any dispute3976related to the amount of Contingent Consideration payable, Buyer will remit the3977amount due promptly following the resolution of any such dispute.39783979(v) Resolution of Objection. If the Company shall have3980provided a Notice of Objection, the Company and Buyer will attempt in good faith3981to agree upon the rights of the respective parties with respect to each of such3982claims. If the Company and Buyer should so agree, a memorandum setting forth3983such agreement will be prepared and signed by Buyer and the Company, and Buyer3984will retain or distribute Contingent Consideration as provided therein. In the3985event the parties shall fail to reach an agreement as set forth in the preceding3986sentence within thirty days after the date on which the Company provided a3987Notice of Objection, the dispute shall be submitted to arbitration in accordance3988with the provisions of Section 9.6; PROVIDED, HOWEVER, that if such dispute3989relates solely to accounting matters related to the calculation of Revenue, then3990such dispute shall be submitted for resolution to the Minneapolis/St. Paul3991office of an impartial certified public accountant of national standing (the3992"Auditor") selected by the Company and Buyer. The Company and Buyer shall use3993reasonable efforts to cause the report of the Auditor to be rendered within3994thirty days of its appointment and the Auditor's determination as to the3995resolution of all such disputed objections will be final and binding. The3996Auditor will determine which party is the substantially prevailing party, and3997any and all costs and expenses associated with the Auditor's review and3998determination or the related audit shall be borne by the party that is not the3999substantially prevailing party.4000400174002<PAGE>40034004(vi) Intellectual Property Setoffs. In addition to4005claims for Losses pursuant to Article VI hereof, Buyer shall be permitted to4006reduce any Contingent Consideration that becomes earned, due and payable by an4007amount equal to 50% of any Intellectual Property Losses. "Intellectual Property4008Losses" means any Losses incurred in connection with claims made by third4009parties related to Intellectual Property and the Company Products, including4010payments of royalties or license fees and including any amounts incurred or paid4011pursuant to Section 6.2(b) in respect of Intellectual Property; PROVIDED,4012HOWEVER, that40134014(A) for purposes of this Section 1.3(e)(vi), Losses4015shall not include claims arising out of the Company's dispute with Formacoat4016referenced in Section 3.10 of the Company Letter, and40174018(B) to the extent there are Losses to be setoff under4019this Section 1.3(e)(vi) related to Patents issued to unrelated third parties4020that have an issue date after the Closing Date (a "Post Closing Patent"), the4021unused Deductible set forth in Section 6.8(c) shall apply to any such Losses so4022that Buyer shall not be entitled to any setoff pursuant to this Section40231.3(e)(vi) for a Loss related to a Post Closing Patent until the Deductible has4024been satisfied (whether by Losses indemnified under Article VI or by application4025of setoffs under this Section 1.3(e)(vi)). For purposes of Article VI, any such4026Losses that would be setoff under this section 1.3(e)(vi) but for the foregoing4027limitation shall be included in the calculation of the Deductible under Article4028VI regardless of whether indemnification would otherwise be available for such4029setoff Losses in accordance with Article VI. For purposes of clarification and4030by way of example only, if Buyer incurs a Loss related to a Post Closing Patent4031in the amount of $1,000,000 and no other Losses have been claimed against the4032Deductible, then $500,000 of such Loss will be attributed to the Deductible. If4033Buyer thereafter incurs a second Loss related to a Post Closing Patent in the4034amount of $1,000,000, then $175,000 of such second Loss will be attributable to4035the Deductible and Buyer will be entitled to reduce any Contingent Consideration4036that becomes due and payable by $325,000. Except for the foregoing application4037of the Deductible to Losses related to Post Closing Patents, no provisions of4038Article VI shall apply to Losses to be setoff under this Section 1.3(e)(vi), it4039being the intention that Losses may be offset under this Section 1.3(e)(vi)4040regardless of whether indemnification would be available under Article VI for4041breach of a representation or warranty, both before and after expiration of the4042Holdback Termination Date, and without regard to the limits set forth in the4043last sentence of Section 6.8(c).40444045SECTION 1.4 FURTHER ASSURANCES. If at any time after the Closing4046Buyer shall consider or be advised that any deeds, bills of sale, assignments or4047assurances or any other acts or things are necessary, desirable or proper (a) to4048vest, perfect or confirm, of record or otherwise, in Buyer its right, title or4049interest in, to or under any of the Shares or any of the rights, privileges,4050powers, franchises, properties or assets of the Company Subs, (b) to vest,4051perfect, assign, or otherwise transfer to Buyer any right, contract, interest,4052or asset (other than cash or cash equivalents) owned, held or licensed by the4053Company that are necessary or desirable for the development, use, manufacture,4054marketing, distribution or sale of the Company Products, or (c) otherwise to4055carry out the purposes of this Agreement, Buyer and its proper officers and4056directors or40574058405984060<PAGE>40614062their designees shall be authorized to execute and deliver, in the name and on4063behalf of the Company, all such deeds, bills of sale, assignments and assurances4064and to do, in the name and on behalf of the Company, all such other acts and4065things as may be necessary, desirable or proper to vest, perfect or confirm4066Buyer's right, title or interest in, to or under the Shares or right, title or4067interest in, to or under any of the rights, privileges, powers, franchises,4068properties or assets of any Company Sub and otherwise to carry out the purposes4069of this Agreement.40704071SECTION 1.5 CLOSING.40724073(a) The closing of the transactions contemplated by4074this Agreement (the "Closing") and all actions specified in this Agreement to4075occur at the Closing shall take place at the offices of Buyer at 10:00 a.m.4076local time, no later than the second business day following the day on which the4077last of the conditions set forth in Article VII shall have been fulfilled or4078waived (if permissible) (the "Closing Date") or at such other time and place as4079Buyer and the Company shall agree.40804081(b) At the Closing:40824083(i) Buyer shall deliver to the Company, by wire4084transfer to a bank account designated in writing by the Company to Buyer at4085least two business days prior to the Closing Date, an amount equal to the Cash4086Purchase Price less the Holdback Amount in immediately available funds in United4087States dollars, and40884089(ii) the Company shall deliver or cause to be4090delivered to Buyer certificates representing the Shares, duly endorsed in blank4091or accompanied by stock powers duly endorsed in blank in proper form for4092transfer with appropriate transfer stamps, if any, affixed.40934094ARTICLE II -4095REPRESENTATIONS AND WARRANTIES4096------------------------------4097OF BUYER4098--------40994100Buyer represents and warrants to the Company as follows:41014102SECTION 2.1 ORGANIZATION, STANDING AND POWER. Buyer is a corporation4103duly organized, validly existing and in good standing under the laws of the4104State of Minnesota and has the requisite corporate power and authority to carry4105on its business as now being conducted. Buyer is duly qualified to do business,4106and is in good standing, in each jurisdiction where the character of its4107properties owned or held under lease or the nature of its activities makes such4108qualification necessary, except where the failure to be so qualified or in good4109standing would not have a Material Adverse Effect on Buyer.41104111SECTION 2.2 AUTHORITY. On or prior to the date of this Agreement,4112the Board of Directors of Buyer has approved and adopted this Agreement in4113accordance with the Minnesota Business Corporation Act. Buyer has all requisite4114corporate power and authority to enter into this Agreement and to consummate the41154116411794118<PAGE>41194120transactions contemplated hereby. The execution and delivery of this Agreement4121by Buyer and the consummation by Buyer of the transactions contemplated hereby4122have been duly authorized by all necessary corporate action (including all Board4123action) on the part of Buyer. This Agreement has been duly executed and4124delivered by Buyer, and (assuming the valid authorization, execution and4125delivery of this Agreement by the Company) this Agreement constitutes the valid4126and binding obligation of Buyer enforceable against it in accordance with its4127terms, except as such enforceability may be limited by bankruptcy, insolvency,4128reorganization, moratorium and other similar laws of general applicability4129relating to or affecting creditors' rights generally and by the application of4130general principles of equity, whether such proceeding is considered in equity or4131at law.41324133SECTION 2.3 CONSENTS AND APPROVALS; NO VIOLATION. Assuming that all4134consents, approvals, authorizations and other actions described in this Section41352.3 have been obtained and all filings and obligations described in this Section41362.3 have been made, the execution and delivery of this Agreement does not, and4137the consummation of the transactions contemplated hereby and compliance with the4138provisions hereof will not, result in any violation of, or default (with or4139without notice or lapse of time, or both) under, or give to others a right of4140termination, cancellation or acceleration of any obligation or result in the4141loss of a benefit under, or result in the creation of any Lien upon any of the4142properties or assets of Buyer under, any provision of (a) the Articles of4143Incorporation or the By-laws of Buyer, each as amended to date, (b) any loan or4144credit agreement, note, bond, mortgage, indenture, lease or other agreement,4145instrument, permit, concession, franchise or license applicable to Buyer or any4146of its Subsidiaries, or (c) any judgment, order, decree, statute, law,4147ordinance, rule or regulation applicable to Buyer or any of its properties or4148assets, other than, in the case of clauses (b) or (c), any such violations,4149defaults, rights, losses, Liens that, individually or in the aggregate, would4150not materially impair the ability of Buyer to perform its obligations hereunder4151or prevent the consummation of any of the transactions contemplated hereby or4152thereby. No filing or registration with, or authorization, consent or approval4153of, any domestic (federal and state), foreign or supranational court,4154commission, governmental body, regulatory agency, authority or tribunal (a4155"Governmental Entity") is required by or with respect to Buyer in connection4156with the execution and delivery of this Agreement by Buyer or is necessary for4157the consummation of the transactions contemplated by this Agreement, except for4158(i) in connection, or in compliance, with the provisions of the4159Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR4160Act"), (ii) such filings and consents as may be required under any4161environmental, health or safety law or regulation pertaining to any4162notification, disclosure or required approval triggered by consummation of the4163transactions contemplated by this Agreement, (iii) such filings, authorizations,4164orders and approvals as may be required by state takeover laws (the "State4165Takeover Approvals"), (iv) any of such items as may be required under foreign4166laws, and (v) such other consents, orders, authorizations, registrations,4167declarations, approvals and filings the failure of which to be obtained or made4168would not, individually or in the aggregate, have a Material Adverse Effect on4169Buyer, materially impair the ability of Buyer to perform its obligations4170hereunder or prevent the consummation of any of the transactions contemplated4171hereby or thereby. For purposes of this Agreement, "Material Adverse Effect" and4172"Material Adverse Change" mean,417341744175104176<PAGE>41774178when used with respect to Buyer, any change or effect that is or could4179reasonably be expected (as far as can be foreseen at the time) to be materially4180adverse to the business, operations, properties, assets, liabilities, employee4181relationships, customer or supplier relationships, earnings or results of4182operations, financial projections or forecasts, or the business prospects and4183condition of Buyer and its Subsidiaries taken as a whole.41844185ARTICLE III -4186REPRESENTATIONS AND WARRANTIES OF THE COMPANY4187---------------------------------------------41884189Each representation and warranty set forth below is qualified by any4190exception or disclosures set forth in the letter dated the date hereof and4191delivered on the date hereof by the Company to Buyer, which relates to this4192Agreement and is designated therein as the Company Letter (the "Company4193Letter"), which exceptions specifically reference the Sections to be qualified.4194In all other respects, each representation and warranty set out in this Article4195III is not qualified in any way whatsoever, will not merge on the Closing, or by4196reason of the execution and delivery of any agreement, document or instrument at4197the Closing, will remain in force on and after the Closing Date, is given with4198the intention that liability is not confined to breaches discovered before4199Closing, is separate and independent and is not limited by reference to any4200other representation or warranty or any other provision of this Agreement, and4201is made and given with the intention of inducing Buyer to enter into this4202Agreement. Any item, information or facts disclosed in one section or subsection4203of the Company Letter will be deemed to be disclosed in all other sections or4204subsections of the Company Letter where such disclosure would be appropriate and4205reasonably apparent on its face without any additional information or where4206specifically cross referenced. For purposes of this Agreement, the "Company's4207Knowledge" or "to the Knowledge of the Company" means the actual knowledge of4208George Harter, David Kressler, Sew-Wah Tay, Dennis Wahr, Peter Keith, Tom4209Resseman, Steve Hackett, Peggy Holland, Jim Pavliska, Dave Blaeser, and, for4210purposes of Section 3.20 only, Tom Heiland. The Company represents and warrants4211to Buyer as follows:42124213SECTION 3.1 ORGANIZATION, STANDING AND POWER.42144215(a) The Company is a limited liability company duly4216organized, validly existing and in good standing under the laws of the State of4217Delaware and has the requisite power and authority to carry on its business as4218now being conducted. The Company is duly qualified to do business, and is in4219good standing, in each jurisdiction where the character of its properties owned4220or held under lease or the nature of its activities makes such qualification4221necessary, except where the failure to be so qualified or in good standing would4222not have a Material Adverse Effect on the Company or the Company Subs. The4223Company has previously delivered to Buyer accurate and complete copies of the4224Certificate of Formation of the Company and the Fourth Amended and Restated4225Limited Liability Company Agreement of the Company as currently in full force4226and effect (together, the "Company Charter"). There are no other governing or4227organizational documents of the Company other than the Company Charter. Except4228as listed in Section 3.1 of the Company Letter, there are no agreements between422942304231114232<PAGE>42334234holders of Company Membership Units in their capacity as such. There have been4235no predecessor entities of the Company.42364237(b) Each Company Sub is a corporation duly organized,4238validly existing and in good standing under the laws of the State of Delaware4239and has the requisite corporate power and authority to carry on its business as4240now being conducted. Each Company Sub is duly qualified to do business, and is4241in good standing, in each jurisdiction where the character of its properties4242owned or held under lease or the nature of its activities makes such4243qualification necessary, except where the failure to be so qualified or in good4244standing would not have a Material Adverse Effect on the Company Subs. The4245Company has previously delivered to Buyer accurate and complete copies of the4246articles of incorporation and bylaws of each Company Sub. There have been no4247predecessor entities of any of the Company Subs.42484249SECTION 3.2 CAPITAL STRUCTURE.42504251(a) INC. The authorized capital stock of INC consists4252of 1,500,000 shares of Common Stock, of which 1,200,000 shares of Common Stock4253are issued and outstanding on the date hereof (the "INC Shares"). The INC Shares4254are all duly authorized, validly issued, fully paid and nonassessable.42554256(b) PFO. The authorized capital stock of PFO consists of4257100 shares of Common Stock, of which 100 shares of Common Stock are issued and4258outstanding on the date hereof (the "PFO Shares"). The PFO Shares are all duly4259authorized, validly issued, fully paid and nonassessable.42604261(c) DMC. The authorized capital stock of DMC consists of4262100 shares of Common Stock, of which 100 shares of Common Stock are issued and4263outstanding on the date hereof (the "DMC Shares"). The DMC Shares are all duly4264authorized, validly issued, fully paid and nonassessable.42654266(d) Subsidiaries. Other than INC, PFO and DMC, the4267Company has no Subsidiaries.42684269(e) The Shares. The INC Shares, the PFO Shares and the4270DMC Shares constitute all of the shares of capital stock that comprise the4271Shares. The Company is the record and beneficial owner of the Shares, free and4272clear of any Encumbrance. The Company has the right, authority and power to4273sell, assign and transfer the Shares to Buyer. Upon delivery to Buyer of4274certificates for the Shares at the Closing, the Buyer shall acquire good, valid4275and marketable title to the Shares, free and clear of any Encumbrance other than4276Encumbrances created by Buyer. Other than the Shares, no Company Sub has issued4277or agreed to issue any: (i) share of capital stock or other equity or ownership4278interest, (ii) option, warrant or interest convertible into, exchangeable for or4279exercisable for shares of capital stock or other equity or ownership interests,4280(iii) stock appreciation right, phantom stock, interest in the ownership or4281earnings of any Company Sub or other equity equivalent or equity-based award or4282right; or (iv) bond, debenture or other indebtedness having the right to vote or4283convertible or428442854286124287<PAGE>42884289exchangeable for securities having the right to vote. Except for the rights4290granted to Buyer under this Agreement, there are no outstanding obligations of4291any Company Sub to issue, sell or transfer or repurchase, redeem or otherwise4292acquire or that relate to the holding, voting or disposition of or that restrict4293the transfer of the Shares. All of the Shares have been offered, sold and4294delivered in compliance with all applicable federal and state securities laws.4295No Shares have been issued in violation of any rights, agreements, arrangements4296or commitments under any provision of Applicable Law, the certificate of4297incorporation or bylaws of the relevant Company Sub or any Contract to which the4298Company or any Company Sub is a party or by which any of them are bound.42994300(f) Except for the Shares, neither the Company nor any4301Company Sub owns any equity, partnership, membership or similar interest in, or4302any interest convertible into or exchangeable therefor, or is under any current4303or prospective obligation to form or participate in, provide funds to, make any4304loan, capital contribution or other investment in or assume or guarantee any4305liability or obligation of, any Person.43064307SECTION 3.3 AUTHORITY. The Company has all requisite power and4308authority to enter into this Agreement and to consummate the transactions4309contemplated hereby. The execution and delivery of this Agreement by the Company4310and the consummation by the Company of the transactions contemplated hereby have4311been duly authorized by all necessary action on the part of the Company,4312including approval of this agreement by a majority of the holders of membership4313units of the Company (the "Company Membership Units"). No further approval of4314the holders of Company Membership Units is required in connection with the4315consummation of the transactions contemplated by this Agreement. This Agreement4316has been duly and validly executed and delivered by the Company and (assuming4317the valid authorization, execution and delivery of this Agreement by Buyer and4318the validity and binding effect of the Agreement on Buyer) constitutes the valid4319and binding obligation of the Company enforceable against the Company in4320accordance with its terms, except as such enforceability may be limited by4321bankruptcy, insolvency, reorganization, moratorium and other similar laws of4322general applicability relating to or affecting creditors' rights generally and4323by the application of general principles of equity, whether such proceeding is4324considered in equity or at law.43254326SECTION 3.4 CONSENTS AND APPROVALS; NO VIOLATION. Except as set4327forth in Section 3.4 of the Company Letter, assuming that all consents,4328approvals, authorizations and other actions described in this Section 3.4 have4329been obtained and all filings and obligations described in this Section 3.4 have4330been made and any waiting periods thereunder have terminated or expired, the4331execution and delivery of this Agreement does not, and the consummation of the4332transactions contemplated hereby and compliance with the provisions hereof and4333thereof will not, result in any violation of, or default (with or without notice4334or lapse of time, or both) under, or give to others a right of termination,4335cancellation or acceleration of any obligation or result in the loss of a4336benefit under, or result in the creation of any lien, security interest, charge4337or encumbrance upon any of the properties or assets of the Company or any of its4338Subsidiaries under, any provision of (a) the Company Charter, (b) any provision4339of comparable charter or organizational documents of any of the Company Subs,4340(c) any Material Contract, or (d)434143424343134344<PAGE>43454346any judgment, order, decree, statute, law, ordinance, rule or regulation4347applicable to the Company or any Company Sub or any of their respective4348properties or assets. No filing or registration with, or authorization, consent4349or approval of, any Governmental Entity is required by or with respect to the4350Company or any of its Subsidiaries in connection with the execution and delivery4351of this Agreement by the Company or is necessary for the consummation of the4352transactions contemplated by this Agreement, except for (i) in connection, or in4353compliance, with the provisions of the HSR Act, (ii) such filings and consents4354as may be required under any environmental, health or safety law or regulation4355pertaining to any notification, disclosure or required approval triggered by the4356consummation of the transactions contemplated by this Agreement, and (iii) any4357of such items as may be required under foreign laws.43584359SECTION 3.5 FINANCIAL STATEMENTS.43604361(a) The Company has furnished Buyer with copies of the4362following (collectively, the "Financial Statements"): (i) an audited4363consolidated balance sheet of the Company as of December 31, 2003, (ii) an4364unaudited consolidated balance sheet for the Company as of September 30, 2004,4365and (iii) the related statements of income and of changes in financial position4366for such periods. The balance sheet of the Company as of September 30, 2004 is4367referred to herein as the "Company Balance Sheet" and the date thereof is4368referred to herein as the "Company Balance Sheet Date". The Financial Statements4369are included as Section 3.5 of the Company Letter.43704371(b) The Financial Statements: (i) are correct and4372complete in all material respects and have been prepared in accordance with the4373books and records of the Company and the Company Subs; (ii) have been prepared4374in accordance with GAAP consistently applied throughout the periods covered,4375except as noted in the Financial Statements and except with respect to the4376Financial Statements as of and for the period ended September 30, 2004, which do4377not include all information and footnotes required by GAAP and do not reflect4378the adjustments set forth in Section 3.5(b) of the Company Letter, but4379nevertheless reflect all adjustments (other than those set forth in Section 3.54380of the Company Letter), which are of a normal recurring nature, necessary for a4381fair presentation of the Company's financial position and the results of its4382operations; (iii) reflect and provide in accordance with GAAP adequate reserves4383in respect of all known liabilities of the Company and the Company Subs,4384including all known contingent liabilities, as of such dates; (iv) do not4385contain any items of a special or nonrecurring income or any other income not4386earned in the ordinary course of business except as expressly specified therein;4387and (v) present fairly in all material respects the consolidated financial4388condition of the Company and the Company Subs at such dates and the consolidated4389results of their operations for the fiscal periods then ended.43904391(c) The Company and each Company Sub keeps books,4392records and accounts that, in reasonable detail, accurately and fairly reflect4393(i) the transactions and dispositions of assets of such entities and (ii) the4394value of inventory calculated in accordance with GAAP.43954396144397<PAGE>43984399(d) Except as set forth in Section 3.5(d) of the Company4400Letter, there are no intra-company amounts payable or accounts receivable4401between the Company on the one hand and the Company Subs on the other hand.44024403(e) Except as reflected or reserved against in the4404Financial Statements (which reserves have been established in accordance with4405GAAP), or disclosed in the footnotes thereto and except as set forth in Section44063.5(e) of the Company Letter, the Company and its Subsidiaries had no4407liabilities (including Tax liabilities) at the Balance Sheet Date, absolute or4408contingent, of a type required to be recorded on a balance sheet or disclosed in4409the notes thereto under GAAP. As of the date hereof, the Company and the Company4410Subs had no indebtedness for borrowed money.44114412SECTION 3.6 NO DEFAULT. Except as set forth in Section 3.6 of the4413Company Letter, neither the Company or any of its Subsidiaries is in breach,4414default or violation (and no event has occurred that with notice or the lapse of4415time or both would constitute a breach, default or violation) of any term,4416condition or provision of (a) its charter or organizational documents, (b) any4417Material Contract, (c) any order, writ, injunction, decree, law, statute, rule,4418or regulation applicable to the Company or any of its Subsidiaries or any of4419their respective properties or assets.44204421SECTION 3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set4422forth in Section 3.7 of the Company Letter, since the Company Balance Sheet4423Date, (a) the Company and its Subsidiaries have not incurred any liability or4424obligation (indirect, direct or contingent), or entered into any oral or written4425agreement or other transaction, that is not in the ordinary course of business,4426(b) the Company and its Subsidiaries have not sustained any loss or interference4427with their business or properties from fire, flood, windstorm, accident or other4428calamity (whether or not covered by insurance), (c) there has been no change in4429the capitalization of the Company except for the issuance of Company Membership4430Units pursuant to Company Options, (d) there has been no change in the4431capitalization of any of the Company Subs, (e) there has been no dividend or4432distribution of any kind declared, paid or made by the Company on any class of4433Company Membership Units, (f) there has been no dividend or distribution of any4434kind declared, paid or made by any of the Company Subs on the Shares, (g) there4435has not been (i) any adoption of a new Company Plan (as hereinafter defined),4436(ii) any amendment to a Company Plan increasing benefits thereunder, (iii) any4437granting by the Company or any of its Subsidiaries to any executive officer or4438other key employee of the Company or any of its Subsidiaries of any increase in4439compensation, except in the ordinary course of business consistent with prior4440practice or as was required under employment agreements in effect as of the date4441of the Company Balance Sheet Date, (iv) any granting by the Company or any of4442its Subsidiaries to any such executive officer or other key employee of any4443increase in severance or termination agreements in effect as of the Company4444Balance Sheet Date, or (v) any entry by the Company or any of its Subsidiaries4445into any employment, severance or termination agreement with any such executive4446officer or other key employee, (h) there have not been any changes in the amount4447or terms of the indebtedness for borrowed money or guarantees of indebtedness4448for borrowed money of the Company and its Subsidiaries from the Balance Sheet4449Date (including capitalized leases), and (i) there has been no event causing a4450Material Adverse Effect on the445144524453154454<PAGE>44554456Company Subs, nor any development that would, individually or in the aggregate,4457reasonably be expected to result in a Material Adverse Effect on the Company4458Subs. For purposes of this Agreement, "Material Adverse Change" or "Material4459Adverse Effect" mean, when used with respect to the Company or the Company Subs,4460any change or effect that is or could reasonably be expected (as far as can be4461foreseen at the time) to be materially adverse to the business, operations,4462properties, assets, liabilities, employee relationships, customer or supplier4463relationships, earnings or results of operations, or the financial condition of4464the Company Subs, taken as a whole, other than such changes, effects or4465circumstances reasonably attributable to: (i) economic conditions generally in4466the United States or foreign economies in any locations where the Company Subs4467have operations or sales; (ii) conditions generally affecting the industries in4468which the Company Subs participate, provided, with respect to clauses (i) and4469(ii) the changes, effects or circumstances do not have a materially4470disproportionate effect (relative to other industry participants) on the Company4471Subs; (iii) the payment of any amounts due to, or the provision of any other4472benefits to, any officers or employees under employment contracts,4473non-competition agreements, employee benefit plans, severance arrangements or4474other arrangements in existence on the date of this Agreement and disclosed in4475the Company Letter; (iv) any action taken by the Company or the Company Subs4476with Buyer's express written consent (except that consent to action taken to4477respond to a Material Adverse Effect or a Material Adverse Change shall not be4478deemed any waiver by Buyer as to the event or circumstance giving rise to such4479Material Adverse Effect or Material Change); or (v) the announcement or pendency4480of the transactions contemplated by this Agreement to the extent the same causes4481cancellation or delay in placing customer orders or potential customer orders.44824483SECTION 3.8 PERMITS AND COMPLIANCE.44844485(a) Each of the Company and its Subsidiaries is and at4486all times has been in possession of all material franchises, grants,4487authorizations, licenses, permits, easements, variances, exceptions, consents,4488certificates, approvals and orders of any Governmental Entity necessary for the4489Company or any of its Subsidiaries to own, lease and operate its properties or4490to carry on its business as it is now being conducted (the "Company Permits"),4491and no suspension or cancellation of any of the Company Permits is pending or,4492to the Knowledge of the Company or the Company Subs, threatened. Neither the4493Company nor any of its Subsidiaries is nor has been in violation in any material4494respect of (i) any Company Permits, or (ii) any other Applicable Law, including4495any consumer protection, equal opportunity, customs, export control, foreign4496trade, foreign corrupt practices (including the Foreign Corrupt Practices Act),4497patient confidentiality, health, health care industry regulation and third-party4498reimbursement laws including under any Federal Health Care Program (as defined4499in Section 1128B(f) of the U.S. Federal Social Security Act (together with all4500regulations promulgated thereunder, the "SSA")).45014502(b) Neither the Company nor any of its Subsidiaries is4503subject to any consent decree from any Governmental Entity. Neither the Company4504nor any of its Subsidiaries has received any warning letter from the FDA during4505the last three years. Neither the Company nor any of its Subsidiaries has4506received a communication from any450745084509164510<PAGE>45114512regulatory agency or been notified during the last three years that any product4513approval is withdrawn or modified or that such an action is under consideration.4514Without limiting the foregoing, the Company and its Subsidiaries are in4515compliance, in all material respects, with all current applicable statutes,4516rules, regulations, guidelines, policies or orders administered or issued by the4517FDA or comparable foreign Governmental Entity including FDA's Quality System4518Regulation, 21 CFR Part 820; the Company has no Knowledge of any facts which4519furnish any reasonable basis for any Form FDA-483 observations or regulatory or4520warning letters from the FDA, Section 305 notices, or other similar4521communications from the FDA or comparable foreign entity; and since April 30,45221999, there have been no recalls, field notifications, alerts or seizures4523requested or threatened relating to the Company Products, except set forth in4524Section 3.8 of the Company Letter. The Company Products, where required, are4525being marketed under valid pre market notifications under Section 510 (k) of the4526Federal Food, Drug and Cosmetic Act, 21 U.S.C. ss.360(k), and 21 C.F.R. Part4527807, Subpart E ("510(k)'s") or PMA's. All 510(k)'s and PMA's for the Company4528Products are exclusively owned by the Company Subs, and to the Knowledge of the4529Company there is no reason to believe that FDA is considering limiting,4530suspending, or revoking any such 510(k)'s or PMA's or changing the marketing4531classification or labeling of any such products. To the Knowledge of the4532Company, there is no false information or significant omission in any product4533application or product-related submission to the FDA or comparable foreign4534Governmental Entity. The Company Subs have obtained all necessary regulatory4535approvals from any foreign regulatory agencies related to the products4536distributed and sold by the Company Subs. Neither the Company, nor its4537Subsidiaries, nor any of their respective officers, directors, managing4538employees or agents (as those terms are defined in 42 C.F.R. ss.1001.1001): (i)4539have engaged in any activities which are prohibited under, or are cause for4540civil penalties or mandatory or permissive exclusion from, any Federal Health4541Care Program under Sections 1128, 1128A, 1128B, or 1877 of SSA or related state4542or local statutes, including knowingly and willfully offering, paying,4543soliciting or receiving any remuneration (including any kickback, bribe or4544rebate), directly or indirectly, overtly or covertly, in cash or in kind in4545return for, or to induce, the purchase, lease, or order, or the arranging for or4546recommending of the purchase, lease or order, of any item or service for which4547payment may be made in whole or in part under any such program; (ii) have had a4548civil monetary penalty assessed against them under Section 1128A of SSA; (iii)4549have been excluded from participation under any Federal Health Care Program; or4550(iv) have been convicted (as defined in 42 C.F.R. ss. 1001.2) of any of the4551categories of offenses described in Sections 1128(a) or 1128(b)(1), (b)(2), or4552(b)(3) of SSA.45534554(c) Except as set forth in Section 3.8(c) of the Company4555Letter, there are no contracts or agreements of the Company or its Subsidiaries4556having terms or conditions which would have a Material Adverse Effect on the4557Company Subs or having covenants not to compete that impair the ability of the4558Company or its Subsidiaries to conduct the business of the Company Subs as4559currently conducted or would reasonably be expected to impair Buyer's ability to4560conduct the business of the Company Subs as it is currently being conducted4561(other than as a result of facts or circumstances related solely to Buyer).45624563174564<PAGE>45654566SECTION 3.9 TAX MATTERS. Except as otherwise set forth in Section45673.9 of the Company Letter, (a) the Company Subs have timely filed (taking4568account of extensions to file that have been properly obtained) all Tax Returns4569(as hereinafter defined) required to have been filed by them, and such Tax4570Returns are correct and complete in all respects; (b) the Company Subs have4571timely paid (taking account of extensions to pay that have been properly4572obtained) all Taxes (as hereinafter defined) required to have been paid by them4573that have been due; (c) the Company Subs have complied in all respects with all4574rules and regulations relating to the withholding of Taxes and the remittance of4575withheld Taxes; (d) none of the Company Subs has waived any statute of4576limitations in respect of their Taxes, which remains open; (e) no federal,4577state, local, or foreign audits or administrative proceedings are pending with4578regard to any Taxes or Tax Returns of any of the Company Subs and none of the4579Company Subs has received a written notice of any proposed audit or proceeding4580from the Internal Revenue Service ("IRS") or any other taxing authority; (f)4581none of the Company Subs has engaged in any transaction that would constitute a4582"reportable transaction" within the meaning of Section 6111 or a "tax shelter"4583within the meaning of Section 6662 of the Internal Revenue Code of 1986, as4584amended (the "Code") and that has not been disclosed on an applicable Tax4585Return; (g) none of the Company Subs has submitted a request for a ruling to the4586IRS or any other taxing authority; (h) none of the Company Subs has at any time4587changed any of its methods of reporting income or deductions for Tax purposes4588from those employed in the preparation of its Tax Returns; (i) none of the4589Company Subs has been a member of an affiliated group of corporations (within4590the meaning of Section 1504(a)) filing a consolidated federal income tax return4591(or a group of corporations filing a consolidated, combined, or unitary income4592tax return under comparable provisions of state, local, or foreign tax law) for4593any taxable period; (j) none of the Company Subs has any obligation under any4594agreement or arrangement with any other Person with respect to Taxes of such4595other Person (including pursuant to Treasury Regulations Section 1.1502-6 or4596comparable provision of state, local or foreign tax law) including any liability4597for Taxes of any predecessor entity; (k) the unpaid Taxes of the Company Subs do4598not exceed the reserve for Tax liability (excluding any reserve for deferred4599Taxes established to reflect temporary differences between book and Tax income)4600set forth or included in the Company Balance Sheet as adjusted for the passage4601of time through the Closing Date, and (l) Section 3.9 of the Company Letter sets4602forth all jurisdictions outside of the United States in which any of the Company4603Subs is subject to Tax, is engaged in business, or has a permanent4604establishment. For purposes of this Agreement: (i) "Taxes" means any federal,4605state, local, foreign or provincial income, gross receipts, property, sales,4606use, license, franchise, employment, payroll, withholding, alternative or added4607minimum, ad valorem, value-added, transfer, excise, capital, or net worth tax,4608or other tax, custom, duty, governmental fee or other like assessment or charge4609of any kind whatsoever, together with any interest thereon or penalty imposed4610with respect thereto by any Governmental Entity, whether computed on a separate,4611consolidated, unitary, combined, or any other basis, and shall include any4612transferee or secondary liability in respect of any tax (whether imposed by law,4613contractual agreement, or otherwise), and (ii) "Tax Return" means any return,4614report or similar statement (including the attached schedules) required to be4615filed with respect to any Tax, including any information return, claim for4616refund, amended return or declaration of estimated Tax.46174618184619<PAGE>46204621SECTION 3.10 ACTIONS AND PROCEEDINGS. Except as set forth in Section46223.10 of the Company Letter, there are no outstanding orders, judgments,4623injunctions, awards or decrees of any Governmental Entity against or involving4624the Company or any of its Subsidiaries, or against or involving any of the4625present or former directors, officers, employees, consultants, agents or members4626of the Company or any of its Subsidiaries, in their capacities as such, any of4627its or their properties, assets or business or any Company Plan (as hereinafter4628defined). Except as set forth in Section 3.10 of the Company Letter, there are4629no actions, suits or claims or legal, administrative or arbitrative proceedings4630or investigations (including claims for workers' compensation) pending or, to4631the Knowledge of the Company, threatened against or involving the Company or any4632of its Subsidiaries or any of its present or former directors, officers,4633employees, consultants, agents or members, in their capacities as such, or any4634of the Company's or any Subsidiary's properties, assets or business or any4635Company Plan.46364637SECTION 3.11 CERTAIN AGREEMENTS.46384639(a) Except as set forth in Section 3.11(a) of the4640Company Letter, neither the Company nor any of the Company Subs is a party to4641any oral or written agreement, program, plan or other arrangement relating to4642the compensation of employees of the Company or the Company Subs, including any4643employment agreement, severance agreement, option plan, appreciation rights4644plan, restricted membership unit plan or membership unit purchase plan, pension4645plan (as defined in Section 3(2) of ERISA) or welfare plan (as defined in4646Section 3(1) of ERISA) (collectively the "Compensation Agreements"), any of the4647benefits of which will be increased, or the vesting of the benefits of which4648will be accelerated, by the occurrence of any of the transactions contemplated4649by this Agreement or the value of any of the benefits of which will be4650calculated on the basis of any of the transactions contemplated by this4651Agreement. Section 3.11(a) of the Company Letter sets forth (i) for each4652officer, director or employee who is a party to, or will receive benefits under,4653any Compensation Agreement as a result of the transactions contemplated herein,4654the total amount that each such Person may receive, or is eligible to receive,4655assuming that the transactions contemplated by this Agreement are consummated on4656the date hereof, and (ii) the total amount of indebtedness owed to the Company4657or the Company Subs from each officer, director or employee of the Company and4658the Company Subs.46594660(b) Set forth in Section 3.11(b) of the Company Letter4661is a list of all Material Contracts to which any of the Company Subs is a party4662as of the date hereof or to which any of its assets are bound. Prior to the date4663hereof, the Company has provided true and complete copies of all such Material4664Contracts to Buyer. "Material Contracts" means any of the following contracts,4665agreements or arrangements (other than purchase or sales orders entered into in4666the ordinary course), whether written or oral, currently in effect:46674668(i) any contract or commitment that involves a4669dollar amount in excess of $50,000 or extends for a period of 12 months or more;46704671194672<PAGE>46734674(ii) any employment contracts with employees, agents4675or consultants;46764677(iii) any contract with sales or other agents,4678brokers, franchisees, distributors or dealers;46794680(iv) any partnership or joint venture agreement;46814682(v) any lease or other occupancy or use agreements4683related to Real Estate, or any options, rights of first refusal or security or4684other interests in Real Estate;46854686(vi) any agreements giving any party the right to4687renegotiate or require a reduction in price or refund of payments previously4688made in connection with the business of the Company or its Subsidiaries;46894690(vii) any agreements for the borrowing or lending of4691money with respect to the business of the Company or its Subsidiaries and any4692guaranty agreement or other evidence of indebtedness;46934694(viii) any material agreements that contain any4695provisions requiring the Company or any of its Subsidiaries to indemnify any4696other party thereto;46974698(ix) any agreement for the sale of goods or services4699to any Governmental Entity;47004701(x) any agreement granting any Person a Lien (other4702than a Permitted Lien) on any of the assets of the Company or any of its4703Subsidiaries;47044705(xi) any bonus, executive or deferred compensation,4706profit sharing, pension or retirement, option or membership unit purchase,4707hospitalization, insurance, medical reimbursement or other plan, agreement or4708arrangement or practice providing employee or executive benefits to any officer4709or employee or former officer or former employee;47104711(xii) any non-competition, secrecy or4712confidentiality agreement relating to the business of the Company or its4713Subsidiaries or the Assets or any other contract restricting its right to4714conduct the business of the Company or its Subsidiaries at any time, in any4715manner or at any place in the world, or the expansion thereof to other4716geographical areas, customers, suppliers or lines of business; or47174718(xiii) any license agreement granting to any Company4719Sub any right to use or practice any rights under any Intellectual Property4720(other than commercially available software applications used generally in the4721Company's or Company Subs' operations and that are licensed for a license fee of4722no more than $50,000 in the aggregate) and any license agreement under which any4723Company Subs grants licenses or other rights in or to use or practice any rights4724under any Intellectual Property.47254726204727<PAGE>47284729(c) Except as set forth on Section 3.11(c) of the4730Company Letter, each Material Contract is a legal, valid and binding agreement4731of one of the Company Subs, as applicable; no Company Sub (or to the Knowledge4732of the Company, any other party thereto) is in default under any Material4733Contract in any material respect; and none of such Material Contracts has been4734canceled by the other party thereto. Each Material Contract is in full force and4735effect and no event has occurred which, with the passage of time or the giving4736of notice or both, would constitute a material default, event of default or4737other material breach by the applicable Company Sub which would entitle the4738other party to such Material Contract to terminate the same or declare a default4739or event of default thereunder. The Company and its Subsidiaries are not in4740receipt of any claim of default under any such agreement.47414742SECTION 3.12 ERISA.47434744(a) Each Company Plan is listed in Section 3.12(a) of4745the Company Letter. With respect to each Company Plan, the Company has made4746available to Buyer a true and correct copy of (i) the three most recent annual4747reports (Form 5500) filed with the applicable government agency, (ii) each such4748Company Plan that has been reduced to writing and all amendments thereto, (iii)4749each trust agreement, insurance contract or administration agreement relating to4750each such Company Plan, (iv) a written summary of each unwritten Company Plan,4751(v) the most recent summary plan description or other written explanation of4752each Company Plan provided to participants, (vi) the most recent actuarial4753report or valuation relating to a Company Plan subject to Title IV of the4754Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (vii) the4755most recent determination letter or opinion letter and request therefor, if any,4756issued by the IRS with respect to any Company Plan intended to be qualified4757under section 401(a) of the Code, (viii) any request for a determination4758currently pending before the IRS, (ix) all correspondence with the IRS, the4759Department of Labor, or Pension Benefit Guaranty Corporation relating to any4760outstanding controversy or with respect to any matter that has been resolved in4761the previous three years and (x) all forms and certificate samples used to4762comply with Sections 4980, 9801 and 9802 of the Code. Except as disclosed in4763Section 3.12(a) of the Company Letter, each Company Plan complies in form and4764has complied in operation in all respects with ERISA, the Code and all other4765Applicable Law. Except as set forth in Section 3.12(a) of the Company Letter, no4766"reportable event" (within the meaning of Section 4043 of ERISA) has occurred4767with respect to any Company Plan for which the 30-day notice requirement has not4768been waived. Except as disclosed in Section 3.12(a) of the Company Letter,4769neither the Company nor any Company Sub or ERISA Affiliates (as hereinafter4770defined) has ever contributed to or had any obligation to contribute to any4771multiemployer plan (as defined in Section 3(37) of ERISA). Except as disclosed4772in Section 3.12(a) of the Company Letter, no Company Plan is subject to Title IV4773of ERISA or Section 412 of the Code, nor does the Company or any ERISA Affiliate4774have any liability (contingent or otherwise) pursuant to Title IV of ERISA.47754776(b) Except as listed in Section 3.12(b) of the4777Company Letter and except for routine contributions due and owing, with respect4778to the Company Plans, no event has occurred and there exists no condition or set4779of circumstances in connection478047814782214783<PAGE>47844785with which the Company, the Company Subs, or ERISA Affiliate or Company Plan4786fiduciary could be subject to any material liability under the terms of such4787Company Plans, ERISA, the Code or any other Applicable Law. Except as disclosed4788in Section 3.12(a) of the Company Letter, all Company Plans that are intended to4789be qualified under Section 401(a) of the Code have been determined by the IRS to4790be so qualified, or a timely application for such determination is now pending4791and the Company is not aware of any reason why any such Company Plan is not so4792qualified in operation. Except as disclosed in Section 3.12(b) of the Company4793Letter, neither the Company nor any of its ERISA Affiliates has any liability or4794obligation under any welfare plan to provide benefits after termination of4795employment to any employee or dependent other than as required by Section 4980B4796of the Code.47974798(c) As used herein, (i) "Company Plan" means a "pension4799plan" (as defined in Section 3(2) of ERISA (including a multiemployer plan)), a4800"welfare plan" (as defined in Section 3(1) of ERISA), and any other written or4801oral bonus, profit sharing, deferred compensation, incentive compensation,4802membership unit ownership, membership unit purchase, option, phantom unit,4803restricted unit, unit appreciation right, holiday pay, vacation, severance,4804medical, dental, vision, disability, death benefit, sick leave, fringe benefit,4805personnel policy, insurance or other plan, program, agreement, arrangement or4806understanding, in each case established or maintained by the Company, the4807Company Subs or ERISA Affiliates or as to which the Company or any of its4808Subsidiaries or ERISA Affiliates has contributed or otherwise may have any4809liability, and (ii) "ERISA Affiliate" means any trade or business (whether or4810not incorporated) which would be considered a single employer with the Company4811or any Company Sub pursuant to Section 414(b), (c), (m) or (o) of the Code and4812the regulations promulgated under those sections or pursuant to Section 4001(b)4813of ERISA and the regulations promulgated thereunder.48144815(d) Section 3.12(d) of the Company Letter contains a4816list of all (i) severance and employment agreements with employees of the4817Company, the Company Subs and each ERISA Affiliate, (ii) severance programs and4818policies of the Company, the Company Subs, and each ERISA Affiliate with or4819relating to its employees and (iii) plans, programs, agreements and other4820arrangements of the Company, the Company Subs and each ERISA Affiliate with or4821relating to its employees containing change of control or similar provisions.48224823(e) Except as set forth in Section 3.12(e) of the4824Company Letter, neither the Company nor any of the Company Subs is a party to4825any agreement, contract or arrangement that could result, separately or in the4826aggregate, in the payment, acceleration or enhancement of any benefit as a4827result of the transactions contemplated hereby including, without limitation,4828the payment of any "excess parachute payments" within the meaning of Section4829280G of the Code.48304831(f) Except as disclosed in Section 3.12(a) of the4832Company Letter, there is no Company Plan that is subject to the laws of a4833foreign government or jurisdiction.48344835224836<PAGE>48374838SECTION 3.13 COMPLIANCE WITH WORKER SAFETY LAWS. The properties,4839assets and operations of the Company and the Company Subs are in material4840compliance with all applicable federal, state, local and foreign laws, rules and4841regulations, orders, decrees, judgments, permits and licenses relating to public4842and worker health and safety (collectively, "Applicable Worker Safety Laws").4843With respect to such properties, assets and operations, including any previously4844owned, leased or operated properties, assets or operations, there are no past or4845present events, conditions, circumstances, activities, practices, incidents,4846actions or plans of the Company or any of the Company Subs that may interfere4847with or prevent material compliance or continued material compliance with4848Applicable Worker Safety Laws.48494850SECTION 3.14 PRODUCTS.48514852(a) Since December 31, 1999, neither the Company nor4853any of its Subsidiaries has received a claim for or based upon breach of product4854or service warranty or guaranty or similar claim, strict liability in tort,4855negligent design of product, negligent provision of services or any other4856allegation of liability, including or arising from the materials, design,4857testing, manufacture, packaging, labeling (including instructions for use), or4858sale of its products or from the provision of services; and there is no basis4859for any such claim.48604861(b) The Company has provided in Section 3.14(b) of the4862Company Letter a schedule of the Company Subs' products in development and4863planned introductions. The product and service engineering, development,4864manufacturing and quality control processes which have been and are being4865followed by the Company and the Company Subs are reasonably designed to produce4866products and services which (i) are consistent with the claims made about them4867in the sales brochures and other statements made about them by or on behalf of4868the Company or the Company Subs, (ii) comply with applicable regulatory4869requirements, and (iii) avoid claims of the type described in Section 3.14(a).48704871SECTION 3.15 LABOR MATTERS. Neither the Company nor any of the4872Company Subs is a party to any collective bargaining agreement or labor4873contract, nor, to the Knowledge of the Company, is there any current effort to4874organize any employees of the Company or any Company Sub. Neither the Company4875nor any Company Sub has engaged in any unfair labor practice with respect to any4876persons employed by or otherwise performing services primarily for the Company4877or any of the Company Subs (the "Company Business Personnel"), and there is no4878unfair labor practice complaint or grievance against the Company or by any4879Person pursuant to the National Labor Relations Act or any comparable state4880agency or foreign law pending or, to the Knowledge of the Company, threatened in4881writing with respect to the Company Business Personnel. There is no labor4882strike, slowdown or stoppage pending or, to the Knowledge of the Company,4883threatened against or affecting the Company or any Company Sub that may4884interfere with the respective business activities of the Company and the Company4885Subs. The Company and the Company Subs have complied in all material respects4886with all Applicable Laws relating to employment and labor.48874888234889<PAGE>48904891SECTION 3.16 INTELLECTUAL PROPERTY.48924893(a) As used herein, the term "Intellectual Property"4894means all intellectual property rights arising from or associated with the4895following, whether protected, created or arising under the laws of the United4896States or any other jurisdiction with respect to the following: (i) trade names,4897trademarks and service marks (registered and unregistered), domain names and4898other Internet addresses or identifiers, trade dress and similar rights and4899applications (including intent to use applications) to register any of the4900foregoing (collectively, "Marks"); (ii) patents and patent applications and4901rights with respect to utility models or industrial designs (collectively,4902"Patents"); (iii) copyrights (whether registered or unregistered) and4903registrations and applications therefor (collectively, "Copyrights"); and (iv)4904know-how, inventions, discoveries, methods, processes, techniques,4905methodologies, formulae, algorithms, technical data, specifications, research4906and development information, technology, data bases and other proprietary or4907confidential information, including customer lists, in each case that derives4908economic value (actual or potential) from not being generally known to other4909persons who can obtain economic value from its disclosure, but excluding any4910Copyrights or Patents that cover or protect any of the foregoing (collectively,4911"Trade Secrets").49124913(b) Section 3.16(b)(1) of the Company Letter sets forth4914an accurate and complete list of all registered Marks and applications for4915registration of Marks owned by or exclusively licensed to the Company Subs4916(collectively the "Company Registered Marks"), Section 3.16(b)(2) of the Company4917Letter sets forth an accurate and complete list of all Patents owned by or4918exclusively licensed to the Company Subs (these Patents, as well as divisional,4919continuation, continuation-in-part, reissue, reexamination, and any other4920applications that claim priority to one or more of the Patents and any Patents4921issuing from any such applications, both in the U.S. and in foreign4922jurisdictions will be collectively referred to as collectively the "Company4923Patents"), and Section 3.16(b)(3) of the Company Letter sets forth an accurate4924and complete list of all registered Copyrights and all pending applications for4925registration of Copyrights owned by or exclusively licensed to the Company Subs4926(collectively the "Company Registered Copyrights" and, together with the Company4927Registered Marks and the Company Patents, the "Company Registered IP"). No4928Company Registered IP has been or is now involved in any interference, reissue,4929reexamination, opposition or cancellation proceeding and, to the Knowledge of4930the Company, no such action is or has been threatened with respect to any of the4931Company Registered IP. To the Company's Knowledge, all Company Registered IP has4932been registered or obtained in accordance with all applicable legal requirements4933and is currently in compliance in all material respects with all legal4934requirements (including the timely post-registration filing of affidavits of use4935and incontestability and renewal applications) other than any requirement that,4936if not satisfied, would not result in a cancellation of any such Company4937Registered IP or otherwise materially affect the priority, validity and4938enforceability of such Company Registered IP. To the Company's Knowledge, the4939Company Registered IP is valid, subsisting and enforceable, and no notice or4940claim challenging the validity or enforceability or alleging the misuse of any4941of the Company Registered IP has been received by the Company or any of its4942Subsidiaries. Except as may be set forth in Section 3.16(b) of the Company4943Letter and to the Company's Knowledge, (i) neither the494449454946244947<PAGE>49484949Company nor any of its Subsidiaries has taken any action or failed to take any4950action that could reasonably be expected to result in the abandonment,4951cancellation, forfeiture, relinquishment, invalidation or unenforceability of4952any of the Company Registered IP, and (ii) all filing, examination, issuance,4953post registration and maintenance fees, annuities and the like associated with4954or required with respect to any of the Company Registered IP have been timely4955paid.49564957(c) Trademarks. To the Company's Knowledge, there has4958been no prior use of any Company Registered Mark or any material unregistered4959Mark adopted by the Company Subs (collectively, "Company Marks") by any third4960party that would confer upon such third party superior rights in such Company4961Mark. The Company is not aware of any infringement of the Company Marks. To the4962Company's Knowledge, all Company Registered Marks have been continuously used by4963the Company Subs in the form appearing in, and in connection with, the goods and4964services listed in their respective registration certificates and applications4965therefor, respectively.49664967(d) Actions to Protect Trade Secrets. To the Company's4968Knowledge, each of the Company Subs has taken reasonable steps to protect its4969rights in its Intellectual Property and to maintain the confidentiality of all4970information that constitutes or that at any time constituted a Trade Secret of4971the Company Subs. Without limiting the generality of the foregoing, all current4972and former employees, consultants and contractors of the Company Subs who have4973participated in the creation of any Intellectual Property that is used by the4974Company Subs in the conduct of their respective businesses have entered into4975proprietary information, confidentiality and assignment agreements substantially4976in the Company's standard forms.49774978(e) Ownership. The Company does not own or license any4979Intellectual Property. Except as set forth in Section 3.16(e) of the Company4980Letter, the Company Subs own exclusively all right, title and interest to the4981Company Registered IP and all other Intellectual Property used by the Company4982Subs that is not licensed to the Company Subs pursuant to a written license4983agreement, free and clear of any Lien or other adverse claims or interests, and4984neither the Company nor any of its Subsidiaries has received any written notice4985or claim challenging the Company Subs' ownership of any of such Intellectual4986Property. None of such Intellectual Property owned by the Company Subs is4987subject to any outstanding order, judgment, or stipulation restricting the use4988thereof by the Company Subs.49894990(f) License Agreements. Section 3.16(f)(1) of the4991Company Letter sets forth a complete and accurate list of all agreements4992granting to the Company Subs any right under or with respect to any Intellectual4993Property owned by a third party that is used in connection with the business of4994the Company Subs other than commercially available standard desktop software4995applications used generally in the Company's or any such Company Subs'4996operations and that are licensed for a license fee of no more than $50,000 in4997the aggregate (collectively, the "Inbound License Agreements"), indicating for4998each the title and the parties thereto. Section 3.16(f)(2) of the Company Letter4999sets forth a complete and accurate list of all license agreements under which5000any Company Sub grants any rights under any Intellectual Property, excluding500150025003255004<PAGE>50055006non-exclusive, end user licenses granted by the Company Subs in the ordinary5007course of business to purchasers of the Company Products in which any software5008is embedded. Section 3.16(f)(3) of the Company Letter lists the amount of any5009future royalty, license fee or other payments that may become payable by the5010Company Subs under each such Inbound License Agreements by reason of the use or5011exploitation of the Intellectual Property licensed thereunder. To the Company's5012Knowledge, no loss or expiration of any material Intellectual Property licensed5013to the Company Subs under any Inbound License Agreement is pending or reasonably5014foreseeable or threatened. To the Company's Knowledge, there is no outstanding5015or threatened dispute or disagreement with respect to any Inbound License5016Agreement or any license agreements under which any Company Subs grants any5017rights under any Intellectual Property (collectively, the "Outbound License5018Agreements") that could materially affect any of the respective rights and5019obligations of the parties thereunder. To the Company's Knowledge, the5020execution, delivery and performance by the Company of this Agreement, and the5021consummation of the transactions contemplated hereby, will not result in the5022loss or impairment of, or give rise to any right of any third party to terminate5023or re-price or otherwise modify any of the Company Subs' rights or obligations5024under any Inbound License Agreement or any Outbound License Agreement.50255026(g) Sufficiency of IP Assets. The Intellectual Property5027owned by the Company Subs or licensed under the Inbound License Agreements to5028the Company Subs constitutes all the material Intellectual Property rights5029necessary for the conduct of the businesses of the Company Subs as each is5030currently conducted and proposed to be conducted, excluding commercially5031available standard desktop software applications used generally in the Company5032Subs' operations and that are licensed for a license fee of no more than $50,0005033in the aggregate.50345035(h) No Infringement. Except as set forth in Section50363.16(h) of the Company Letter, to the Company's Knowledge, none of the products5037or services distributed, sold or offered by the Company Subs, nor any5038technology, materials or other Intellectual Property used, displayed, published,5039sold, distributed or otherwise commercially exploited by or for the Company5040Subs, has infringed upon, misappropriated, or violated, or does infringe upon,5041misappropriate or violate any Intellectual Property of any third party in any5042material respect, and no Company Sub has received any notice or claim asserting5043that any such infringement, misappropriation or violation is occurring or has5044occurred. To the Company's Knowledge, no third party is misappropriating or5045infringing any material Intellectual Property owned by the Company Subs in any5046material respect.50475048(i) Software. No source code of any computer software5049owned by the Company Subs has been licensed or otherwise provided to another5050person other than an escrow agent pursuant to the terms of a source code escrow5051agreement in customary form, and to the Company's Knowledge the Company has5052taken reasonable steps to protect all such source code as a Trade Secret of one5053or more of the Company Subs. Except as disclosed in Section 3.16(i) of the5054Company Letter and to the Company's Knowledge, no software embedded in any5055Company Products (i) contains any code that is owned by any third party,5056including any code that is licensed pursuant to505750585059265060<PAGE>50615062the provisions of any "open source" license agreement, or any other license5063agreement that requires source code be distributed or made available in5064connection with the distribution of the licensed software in object code form or5065that limits the amount of fees that may be charged in connection with5066sublicensing or distributing such licensed software (each, an "Open Source5067License"). None of the Company Products in which Software is embedded, as a5068result of the intermingling or integration of code owned by the Company Subs5069with any "open source" software licensed under any Open Source License is, in5070whole or in part, subject to the provisions of any Open Source License.50715072(j) Performance of Existing Products. Each of the5073Company Products performs, in all material respects, free of defects or errors5074that adversely affect the functionality of such products, the functions5075described in any applicable specifications or end user documentation provided to5076customers of the Company Subs on which such customers relied when acquiring such5077products.50785079(k) Documentation. To the Company's Knowledge, the5080Company and each of its Subsidiaries has taken all actions customary in the5081medical device industry to document the Company Products and their operation,5082such that the materials comprising the Company Products, including source code5083and documentation, have been written in a clear and professional manner.50845085(l) Export Restrictions. Neither the Company nor any of5086its Subsidiaries has exported or transmitted products or other materials to any5087country to which such export or transmission is restricted by any applicable5088law, without first having obtained all necessary and appropriate United States5089or foreign government licenses or permits.50905091(m) Employee Confidentiality Agreements. To the5092Company's Knowledge, no employee of or consultant to the Company or any Company5093Sub is obligated under any agreement or subject to any judgment, decree or order5094of any court or administrative agency, or any other restriction that would5095interfere with the use of his or her best efforts to carry out his or her duties5096for the Company or any Company Sub or to promote the interests of the Company5097Subs. To the Company's Knowledge, at no time during the conception of or5098reduction to practice of any Intellectual Property owned or developed by the5099Company Subs was any developer, inventor or other contributor to such5100Intellectual Property operating under any grants from any Governmental Authority5101or private source, performing research sponsored by any Governmental Authority5102or private source or subject to any employment agreement or invention assignment5103or nondisclosure agreement or other obligation with any third party that could5104adversely affect the Company Subs' rights in such Intellectual Property. To the5105Company's Knowledge, there exist no inventions by current and former employees5106or consultants of any Company Sub, made or otherwise conceived prior to their5107beginning employment or consultation with such Company Sub that have been or5108will be incorporated into any of the Company's Intellectual Property or5109products.51105111(n) Intellectual Property Opinions. Set forth in5112Section 3.16(n) of the Company Letter is a list of all written opinions of5113counsel related to Intellectual511451155116275117<PAGE>51185119Property that the Company or any Company Sub has ever received. A true and5120correct copy of each such opinion has been provided to Buyer.51215122SECTION 3.17 BUSINESS COMBINATION. No "fair price," "interested5123shareholder," "business combination" or similar provision of any state takeover5124law is applicable to the transactions contemplated by this Agreement.51255126SECTION 3.18 ACCOUNTS RECEIVABLE. All of the accounts and notes5127receivable of the Company Subs set forth on the books and records of the Company5128Subs (net of the applicable reserves reflected on the books and records of the5129Company and in the Financial Statements) (i) represent sales actually made or5130transactions actually effected in the ordinary course of business for goods or5131services delivered or rendered to unaffiliated customers in bona fide arm's5132length transactions and (ii) except as set forth on Section 3.18(ii) of the5133Company Letter, constitute valid claims.51345135SECTION 3.19 INVENTORIES. Except as set forth in Section 3.19 of the5136Company Letter, all inventories of the Company Subs consist of items of5137merchantable quality and quantity usable or saleable (free of any material5138defect or deficiency) in the ordinary course of business, are saleable at5139prevailing market prices that are not less than the book value amounts thereof5140or the price customarily charged by the Company Subs therefor, conform to the5141specifications established therefor, and have been manufactured in all material5142respects in accordance with applicable regulatory requirements. Except as set5143forth in Section 3.19 of the Company Letter, the quantities of all inventories,5144materials, and supplies of the Company Subs (net of the obsolescence reserves5145therefor shown in the Financial Statements and determined in the ordinary course5146of business consistent with past practice) are not obsolete, damaged,5147slow-moving, defective, or excessive.51485149SECTION 3.20 ENVIRONMENTAL MATTERS.51505151(a) For purposes of this Agreement, the following terms5152shall have the following meanings: (i) "Hazardous Substances" means (A)5153petroleum and petroleum products, by-products or breakdown products, radioactive5154materials, asbestos-containing materials and polychlorinated biphenyls, and (B)5155any other chemicals, materials or substances regulated as toxic or hazardous or5156as a pollutant, contaminant or waste under any applicable Environmental Law;5157(ii) "Environmental Law" means any law, past, present or future (up until the5158Closing) and as amended, and any judicial or administrative interpretation5159thereof, including any judicial or administrative order, consent decree or5160judgment, or common law, relating to pollution or protection of the environment,5161health or safety or natural resources, including those relating to the use,5162handling, transportation, treatment, storage, disposal, release or discharge of5163Hazardous Substances; and (iii) "Environmental Permit" means any permit,5164approval, identification number, license or other authorization required under5165any applicable Environmental Law.51665167(b) The Company and its Subsidiaries are and have been5168in material compliance with all applicable Environmental Laws, have obtained all5169Environmental Permits and are in material compliance with their requirements,5170and have517151725173285174<PAGE>51755176resolved all past non-compliance with Environmental Laws and Environmental5177Permits without any pending, on-going or future obligation, cost or liability,5178except in each case for the notices set forth in Section 3.20 of the Company5179Letter.51805181(c) Except as set forth in Section 3.20 of the Company5182Letter, neither the Company nor any of its Subsidiaries has (i) placed, held,5183located, released, transported or disposed of any Hazardous Substances on,5184under, from or at any of the Company's or any of its Subsidiaries' properties or5185any other properties, (ii) Company Knowledge of any Hazardous Substances on,5186under, emanating from, or at any of the Company's or any of its Subsidiaries'5187properties or any other property but arising from the Company's or any of its5188Subsidiaries' current or former properties or operations, or (iii) Company5189Knowledge or any written notice (A) of any violation of or liability under any5190Environmental Laws, (B) of the institution or pendency of any suit, action,5191claim, proceeding or investigation by any Governmental Entity or any third party5192in connection with any such violation or liability, (C) requiring the5193investigation of, response to or remediation of Hazardous Substances at or5194arising from any of the Company's or any of its Subsidiaries' current or former5195properties or operations or any other properties, (D) alleging noncompliance by5196the Company or any of its Subsidiaries with the terms of any Environmental5197Permit in any manner reasonably likely to require significant expenditures or to5198result in liability or (E) demanding payment for response to or remediation of5199Hazardous Substances at or arising from any of the Company's or any of its5200Subsidiaries' current or former properties or operations or any other5201properties, except in each case for the notices set forth in Section 3.20 of the5202Company Letter.52035204(d) There are no environmental assessments or audit5205reports or other similar studies or analyses in the possession or control of the5206Company or any of its Subsidiaries relating to any real property currently or5207formerly owned, leased or occupied by the Company or any of its Subsidiaries.52085209(e) Neither the Company nor any of its Subsidiaries has5210exposed any employee or third party to any Hazardous Substances or condition5211that has subjected or may subject the Company or any of its Subsidiaries to5212liability under any Environmental Law.52135214(f) To the Company's Knowledge, no underground storage5215tanks, asbestos-containing material, or polychlorinated biphenyls have ever been5216located on property or properties presently or formerly owned or operated by the5217Company or any of its Subsidiaries.52185219(g) Except as set forth in Section 3.20 of the Company5220Letter, neither the Company nor any of its Subsidiaries has agreed to assume,5221undertake or provide indemnification for any liability of any other person under5222any Environmental Law, including any obligation for corrective or remedial5223action.52245225(h) Neither the Company nor any of its Subsidiaries is5226required to make any capital or other expenditures to comply with any5227Environmental Law nor is522852295230295231<PAGE>52325233there any reasonable basis on which any Governmental Entity could take action5234that would require such capital or other expenditures.52355236SECTION 3.21 SUPPLIERS AND DISTRIBUTORS.52375238(a) Except as set forth in Section 3.21(a) of the5239Company Letter, to the Company's Knowledge, neither the Company nor any of its5240Subsidiaries has received any notice, oral or written, or has any reason to5241believe that any significant supplier, including without limitation any sole5242source supplier, will not sell raw materials, supplies, merchandise and other5243goods to the Company Subs at any time after the Closing on terms and conditions5244substantially similar to those used in its current sales to the Company and its5245Subsidiaries, subject only to general and customary price increases, unless5246comparable raw materials, supplies, merchandise, or other goods are readily5247available from other sources on comparable terms and conditions.52485249(b) Except as set forth in Section 3.21(b) of the5250Company Letter, neither the Company nor any of its Subsidiaries has received any5251notice, oral or written, or to the Company's Knowledge has any reason to believe5252that any distributors, sales representatives, sales agents, or other third party5253sellers, will not sell or market the products or services of the Company or any5254of its Subsidiaries at any time after the Closing (without giving effect to the5255transactions contemplated hereby) on terms and conditions substantially similar5256to those used in the current sales and distribution contracts of the Company and5257its Subsidiaries.52585259SECTION 3.22 INSURANCE. Section 3.22 of the Company Letter contains5260a list of all policies of title, property, fire, casualty, liability, life,5261business interruption, product liability, sprinkler and water damage, workmen's5262compensation, libel and slander, and other forms of insurance of any kind5263relating to the business and operations of the Company Subs in each case which5264are in force as of the date hereof (the "Insurance Policies"). Except for the5265Insurance Policies listed in Section 3.22(a) of the Company Letter, all of the5266Insurance Policies are in the name of, in favor of, and for the benefit of, the5267Company Subs, rather than the Company. All of the Insurance Policies are5268maintained with reputable insurance carriers and provide adequate coverage for5269all normal risks incident to the business of the Company Subs and their5270respective properties and assets. The Company or one of its Subsidiaries has5271made any and all payments required to maintain the Insurance Policies in full5272force and effect. The Company and its Subsidiaries have not received notice of5273default under any Insurance Policy, and has not received written notice or, to5274the Knowledge of the Company, oral notice of any pending or threatened5275termination or cancellation, coverage limitation or reduction or premium5276increase with respect to any Insurance Policy.52775278SECTION 3.23 TRANSACTIONS WITH AFFILIATES.52795280(a) For purposes of this Section 3.23, the term5281"Affiliated Person" means (i) any holder of more than 5% of the Company5282Membership Units, (ii) any director, officer or senior executive of the Company5283or any Subsidiary of the528452855286305287<PAGE>52885289Company, (iii) any member of the immediate family of any of such persons, or5290(iv) any Person that is controlled by any of the foregoing.52915292(b) Except as set forth in Section 3.23(b) of the5293Company Letter, since the Company Balance Sheet Date, the Company and its5294Subsidiaries have not, in the ordinary course of business or otherwise, (i)5295purchased, leased or otherwise acquired any property or assets or obtained any5296services from, (ii) sold, leased or otherwise disposed of any property or assets5297or provided any services to (except with respect to remuneration for services5298rendered in the ordinary course of business as director, officer or employee of5299the Company or any of its Subsidiaries), (iii) entered into or modified in any5300manner any contract with, or (iv) borrowed any money from, or made or forgiven5301any loan or other advance (other than expenses or similar advances made in the5302ordinary course of business) to, any Affiliated Person.53035304(c) Except as set forth in Section 3.23 of the Company5305Letter, (i) the contracts of the Company and its Subsidiaries do not include any5306obligation or commitment between the Company and any Affiliated Person, (ii) the5307assets of the Company and its Subsidiaries do not include any receivable or5308other obligation or commitment from an Affiliated Person to the Company or any5309Subsidiary and (iii) the liabilities of the Company and its Subsidiaries do not5310include any payable or other obligation or commitment from the Company or any5311Subsidiary to any Affiliated Person.53125313(d) No Affiliated Person of any of the Company or any5314Subsidiary is a party to any contract with any customer or supplier of the5315Company or any Subsidiary that affects in any manner the business, financial5316condition or results of operation of the Company or any Subsidiary.53175318SECTION 3.24 ACCURACY OF INFORMATION. Neither this Agreement nor the5319Company Letter contains an untrue statement of a material fact or omits to state5320a material fact necessary in order to make the statements contained herein and5321therein, in light of the circumstances under which they are made, not5322misleading.53235324SECTION 3.25 TITLE TO AND SUFFICIENCY OF ASSETS.53255326(a) As of the date hereof, the Company Subs own, and as5327of the Closing the Company Subs will own, good and marketable title to all of5328their assets constituting tangible personal property and rights under Material5329Contracts (excluding, for purposes of this sentence, assets held under leases5330and assets constituting Intellectual Property), free and clear of any and all5331mortgages, liens, encumbrances, charges, claims, restrictions, pledges, security5332interests or impositions (collectively, "Liens") other than Permitted Liens,5333except as set forth in Section 3.25(a) of the Company Letter. Such tangible5334assets and rights under Material Contracts, together with all assets held by the5335Company Subs under leases, constitute all tangible personal property and rights5336under Material Contracts used in the operation of the business as conducted by5337the Company Subs, including the development, manufacture, sale and distribution5338of the Company Products. The Company is not a party to any Material Contract and5339does not own any tangible personal property, or other asset (other than (i) cash5340and cash equivalents held by534153425343315344<PAGE>53455346the Company which will be contributed to the Company Subs prior to the Closing5347in accordance with Section 4.1(b)(viii) and (ii) the Secured Recourse Promissory5348Note and Pledge Agreements executed by holders of Company Options in connection5349with the exercise of such Company Options, for which an amount equal to the5350aggregate amounts due under such notes will be contributed to the Company Subs5351prior to the Closing or offset in accordance with Section 4.1(b)(viii)).53525353(b) As of the date hereof, the Company and its5354Subsidiaries do not own any Real Estate. All Real Estate leases held by the5355Company and its Subsidiaries are adequate for the operation of the businesses of5356the Company and its Subsidiaries as presently conducted. The leases to all Real5357Estate occupied by the Company or its Subsidiaries are listed in Section 3.25(b)5358of the Company Letter and are in full force and effect and no event has occurred5359which with the passage of time, the giving of notice, or both, would constitute5360a material default or event of default by the Company or any Subsidiary or, to5361the Knowledge of the Company, any other Person who is a party signatory thereto.5362For purposes of this Agreement, "Real Estate" means, with respect to the Company5363or any Subsidiary, as applicable, all of the fee, if any, or leasehold ownership5364right, title and interest of such Person, in and to all real estate and5365improvement owned or leased by any such Person and which is used by any such5366Person in connection with the operation of its business.53675368SECTION 3.26 BROKERS. Except as disclosed in Section 3.26 of the5369Company Letter, no broker, investment banker or other Person is entitled to any5370broker's, finder's or other similar fee or commission in connection with the5371transactions contemplated by this Agreement based upon arrangements made by or5372on behalf of the Company. All such fees or commissions are payable by the5373Company (out of the proceeds of the Cash Purchase Price), and not by any of the5374Company Subs.53755376SECTION 3.27 CONTROLS AND PROCEDURES. The officers of the Company5377have identified for the Company's auditors any material weaknesses in internal5378controls and any fraud, whether or not material, that involves management or5379other employees who have a significant role in the Company's internal controls.53805381SECTION 3.28 CERTAIN BUSINESS PRACTICES. None of the Company, any of5382its Subsidiaries, or to the Company's Knowledge, any directors, officers, agents5383or employees of the Company or any of its Subsidiaries has (a) used any funds5384for unlawful contributions, gifts, entertainment or other unlawful expenses, (b)5385made any unlawful payment to foreign or domestic government officials or5386employees or to foreign or domestic political parties or campaigns or violated5387any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (c)5388made any payment in the nature of criminal bribery.53895390ARTICLE IV -5391COVENANTS RELATING TO CONDUCT OF BUSINESS5392-----------------------------------------53935394SECTION 4.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE CLOSING.5395Except as expressly permitted by clauses (a)(i) through539653975398325399<PAGE>54005401(xxviii) of this Section 4.1, during the period from the date of this Agreement5402through the Closing, the Company and the Company Subs shall carry on their5403respective business in the ordinary course of business as currently conducted5404and, to the extent consistent therewith, use their respective commercially5405reasonable efforts to preserve intact their current businesses organizations,5406keep available the services of their respective current officers and employees5407and preserve their relationships with customers, suppliers and others having5408business dealings with them to the end that the goodwill and ongoing business of5409the Company Subs shall be unimpaired at the Closing. Without limiting the5410generality of the foregoing, and except as otherwise expressly contemplated by5411this Agreement or as set forth in the Company Letter (with specific reference to5412the applicable subsection below), prior to the Closing:54135414(a) The Company shall not, and shall cause its5415Subsidiaries not to, without the prior written consent of Buyer:54165417(i) (A) declare, set aside or pay any dividends on,5418or make any other actual, constructive or deemed distributions in respect of,5419any Company Membership Units, or otherwise make any payments to the members of5420the Company in their capacity as such, (B) declare, set aside or pay any5421dividends on, or make any other actual, constructive or deemed distributions in5422respect of, any Shares, or otherwise make any payments to the Company, (C)5423split, combine or reclassify any of the Company Membership Units or Shares or5424issue or authorize the issuance of any other securities in respect of, in lieu5425of or in substitution for Company Membership Units or Shares or (D) purchase,5426redeem or otherwise acquire any Company Membership Units or the Shares or any5427other securities of the Company or the Company Subs or any rights, warrants or5428options to acquire any such units or other securities;54295430(ii) issue, deliver, sell, pledge, dispose of or5431otherwise encumber any Company Membership Units or any Shares, any other voting5432securities or equity equivalent or any securities convertible into, or any5433rights, warrants or options (including options under the Company Option Plans)5434to acquire any such Company Membership Units or Shares, voting securities,5435equity equivalent or convertible securities, other than the issuance of Company5436Membership Units upon the exercise of Company Options outstanding on the date of5437this Agreement in accordance with their current terms;54385439(iii) amend the Company Charter (other than as5440contemplated by this Agreement) or the articles or bylaws of any Company Sub;54415442(iv) acquire or agree to acquire by merging or5443consolidating with, or by purchasing a substantial portion of the assets of or5444equity in, or by any other manner, any business or any corporation, limited5445liability company, partnership, association or other business organization or5446division thereof or otherwise acquire or agree to acquire any assets;54475448335449<PAGE>54505451(v) alter through merger, liquidation,5452reorganization, restructuring or any other fashion the corporate structure of5453the Company or any Company Sub;54545455(vi) sell, lease or otherwise dispose of, or agree5456to sell, lease or otherwise dispose of, any of its assets, other than sales of5457inventory that are in the ordinary course of business consistent with past5458practice;54595460(vii) incur any indebtedness for borrowed money,5461guarantee any such indebtedness or make any loans, advances or capital5462contributions to, or other investments in, any other Person;54635464(viii) adopt a plan of complete or partial5465liquidation, dissolution, merger, consolidation, restructuring, recapitalization5466or other reorganization (other than the transactions contemplated by this5467Agreement) or otherwise permit its corporate existence, or any of the rights or5468franchises or any license, permit or authorization under which the business5469operates to be suspended, lapsed or revoked;54705471(ix) enter into or adopt any, or amend any5472existing, severance plan, agreement or arrangement or enter into or amend any5473Company Plan, employment, or any consulting agreement (other than as set forth5474in the Company Letter);54755476(x) except as provided in Section 4.1(x) of the5477Company Letter, hire additional employees, consultants or other independent5478contractors or increase the compensation payable or to become payable to its5479directors, officers or employees (except for increases in the ordinary course of5480business consistent with past practice in salaries or wages of employees of the5481Company or any of its Subsidiaries who are not officers of the Company or any of5482its Subsidiaries) or grant any severance or termination pay to, or enter into5483any employment or severance agreement with, any director or officer of the5484Company or any of its Subsidiaries, or establish, adopt, enter into, or, except5485as may be required to comply with Applicable Law, amend in any material respect5486or take action to enhance in any material respect or accelerate any rights or5487benefits under, any labor, collective bargaining, bonus, profit sharing, thrift,5488compensation, option, restricted unit, pension, retirement, deferred5489compensation, employment, termination, severance or other plan, agreement,5490trust, fund, policy or arrangement for the benefit of any director, officer or5491employee;54925493(xi) knowingly violate or knowingly fail to perform5494any obligation or duty imposed upon it or any Subsidiary by any Applicable Law;54955496(xii) make any change to accounting policies or5497procedures (other than actions required to be taken by generally accepted5498accounting principles);54995500(xiii) prepare or file any Tax Return inconsistent5501with its past practice in preparing or filing similar Tax Returns in prior5502periods or, on any such Tax Return, take any position, make any election, or5503adopt any method that is550455055506345507<PAGE>55085509inconsistent with positions taken, elections made or methods used in preparing5510or filing similar Tax Returns in prior periods;55115512(xiv) fail to file in a timely manner any Tax5513Returns (except as to filings for which a proper extension has been obtained)5514that become due or fail to pay any Taxes that become due;55155516(xv) make or rescind any express or deemed election5517relating to Taxes or change any of its methods of reporting income or deductions5518for Tax purposes;55195520(xvi) commence any litigation or proceeding with5521respect to any material Tax liability or settle or compromise any material Tax5522liability or commence any other litigation or proceedings or settle or5523compromise any other material claims or litigation;55245525(xvii) except for sales of inventory in the5526ordinary course of business and the hiring of employees in the ordinary course5527of business as permitted in subsection (ix), enter into, renew, terminate or5528amend any Material Contract; or purchase or lease any real property;55295530(xviii) pay, discharge or satisfy any claims,5531liabilities or obligations (absolute, accrued, asserted or unasserted,5532contingent or otherwise), other than (A) the payment, discharge or satisfaction,5533in the ordinary course of business consistent with past practice or in5534accordance with their terms, of liabilities reflected or reserved against in, or5535contemplated by, the most recent financial statements (or the notes thereto) of5536the Company included in the Financial Statements or incurred in the ordinary5537course of business consistent with past practice or (B) the payment, discharge5538or satisfaction of any and all amounts owed to Silicon Valley Bank pursuant to5539the Loan and Security Agreement between INC and Silicon Valley Bank dated5540January 31, 2003, as amended, in accordance with its terms;55415542(xix) create or form any Subsidiary or make any5543other investment in another Person (except for the capital contributions5544required by Section 4.1(b)(viii));55455546(xx) [INTENTIONALLY OMITTED];55475548(xxi) modify the standard warranty terms for5549products sold by the Company or its Subsidiaries or amend or modify any product5550warranties in effect as of the date hereof in any manner that is adverse to the5551Company or its Subsidiaries;55525553(xxii) make or authorize any new capital5554expenditure or expenditures that individually is in excess of $25,000 or in the5555aggregate are in excess of $50,000;555655575558355559<PAGE>55605561(xxiii) allow any of the Company's or any5562Subsidiaries' Intellectual Property rights to be disclosed, other than under5563appropriate non-disclosure agreements, abandoned, or otherwise become5564unavailable to the Company or its Subsidiaries on the same terms and conditions5565as such rights were available to the Company or its Subsidiaries as of the date5566of this Agreement;55675568(xiv) sell or license to any third party any of its5569Intellectual Property other than non-exclusive licenses in the ordinary course5570of business;55715572(xxv) allow any insurance policy relating to the5573Company's or any Subsidiaries' business to be amended or terminated without5574replacing such policy without a policy providing at least equal coverage,5575insuring comparable risks and issued by an insurance company equivalently rated5576to the prior insurance company;55775578(xxvi) enter into or amend any contract, agreement,5579commitment or arrangement with any Affiliated Person;55805581(xxvii) pay any legal fees, advisory fees, or other5582transaction costs incurred in connection with the transactions contemplated by5583this Agreement except out of the Cash Purchase Price; or55845585(xxviii) authorize, recommend, propose or announce5586an intention to do any of the foregoing, or enter into any contract, agreement,5587commitment or arrangement to do any of the foregoing.55885589(b) The Company shall and shall cause its Subsidiaries5590to:55915592(i) maintain their respective assets and properties5593(including Intellectual Property) in the ordinary course of business in the5594manner historically maintained, reasonable wear and tear, damage by fire and5595other casualty excepted;55965597(ii) promptly repair, restore or replace all assets5598and properties in the ordinary course of business consistent with past practice;55995600(iii) upon any damage, destruction or loss to any5601of its assets or properties, apply any and all insurance proceeds, if any,5602received with respect thereto to the prompt repair, replacement and restoration5603thereof;56045605(iv) comply with all Applicable Laws;56065607(v) take all actions necessary to be in compliance5608with all Material Contracts and to maintain the effectiveness of all Company5609Permits;56105611(vi) notify Buyer in writing of the commencement of5612any action, suit, claim, investigation or other like proceeding by or against5613the Company or any of its Subsidiaries;56145615365616<PAGE>56175618(vii) pay accounts payable and pursue collection of5619its accounts receivable in the ordinary course of business, consistent with past5620practices; and56215622(viii) contribute to the Company Subs, on or before5623the Closing Date (A) all of the cash and cash equivalents held by the Company on5624the date hereof, (B) any and all cash amounts received by the Company in5625connection with the exercise of Company Options, (C) cash in an amount equal to5626any and all amounts payable to the Company under any promissory note or other5627evidence of indebtedness held by the Company in connection with the exercise of5628Company Options that have not been repaid prior to the Closing, and (D) an5629amount equal to the aggregate amount owing from the Company to any Company Sub5630in connection with any obligations outstanding between them. To the extent the5631Company has not contributed the funds to the Company Subs as set forth in the5632preceding clause, Buyer may offset against the Cash Purchase Price,5633dollar-for-dollar, accordingly.56345635SECTION 4.2 CONDUCT OF THE BUSINESS DURING THE CONTINGENT5636CONSIDERATION PERIOD.56375638(a) In General.56395640(i) Uncertainties. The parties understand and5641acknowledge that there are uncertainties surrounding the business of the Company5642and the Company Products, including, but not limited to: (A) the ability to5643satisfactorily complete the design of the Company Products, (B) the clinical5644safety of the Company Products, (C) market acceptance of the Company Products,5645(D) competitive product offerings that may be introduced by third parties, and5646(E) Intellectual Property owned by third parties. As a result of such5647uncertainties, the parties agree and acknowledge that Buyer must have5648flexibility to react to future developments. Buyer is entitled to exercise its5649discretion with respect thereto subject, however, to the following provisions.56505651(ii) No Discontinuance. Prior to the end of FY56522008, Buyer will not withdraw from marketing and sale any Company Product that5653is being sold by Buyer unless Buyer determines, in good faith, that a risk to5654health, safety or Buyer's reputation exists in connection with the continued5655marketing and sale of such Company Product. If Buyer does determine, in good5656faith, that such a risk exists with regard to any Company Product, Buyer shall5657have no liability to the Company or its members as a result of any impact such5658decision, in and of itself, may have on the earning of any Contingent5659Consideration.56605661(iii) Employment Decisions. All employment,5662personnel and staffing decisions related to the Company Products shall be in the5663sole discretion of Buyer. Buyer shall have no liability to the Company or its5664members as a result of any impact such decision, in and of itself, may have on5665the earning of any Contingent Consideration.56665667(iv) Restructuring and Sale. Buyer may merge all or5668any of the Company Subs with or into Buyer or any of its Subsidiaries, including5669any567056715672375673<PAGE>56745675merger or other similar reorganization that would result in the termination of5676the existence of any Company Sub. Buyer shall be free to sell, assign, transfer5677or otherwise dispose of any Company Sub or their respective assets (including a5678sale or exclusive license of the Velocimed Intellectual Property related to one5679or more of the Company Products) (such sale, a "Permitted Sale"); provided that5680a Permitted Sale shall be treated as set forth in Section 4.2(e).56815682(v) Regulatory Approvals. Buyer shall use5683commercially reasonable efforts to obtain regulatory approval for the Company5684Products in the United States, Japan and the European Union. However, Buyer5685shall have the sole right to determine the type and quantity of data and testing5686needed in order to assure the safety and efficacy of the Company Products.56875688(vi) Competitive Products. Buyer may acquire,5689develop, market, manufacture and sell products that are competitive with the5690Company Products and the impact such acquisition development, marketing,5691manufacturing or sale, in and of itself, may have on the earning of any5692Contingent Consideration shall not be the basis of any claim by the Company or5693its members; PROVIDED, HOWEVER, that if Buyer sells any such competitive5694product, the revenues from such sales will be included in the calculation of5695Revenue if, and only if, such competitive product (A) would, but for the5696ownership of the Velocimed Intellectual Property, infringe on the Velocimed5697Intellectual Property, or (B) is a Distal Device, in which event, as provided in5698Section 4.2(c)(v), 50% of such revenue will be included in such Revenue. Buyer5699agrees that, in cases where Buyer sells such a competitive product, Buyer will5700not discriminate against the Company Products in delivery priorities nor will5701Buyer give its sales force or distributors any comparatively higher commissions5702or sales incentives on such competitive products relative to commissions and5703incentives on sales of the competitive Company Product.57045705(b) Premere Approval. Buyer shall use commercially5706reasonable efforts to obtain the Premere Approval during the Contingent5707Consideration Period. Notwithstanding the foregoing or any other provision5708herein to the contrary, but subject to Buyer's determinations being subject to a5709commercial reasonableness standard, in connection with obtaining the Premere5710Approval:57115712(i) Expenditures. Buyer and the Company acknowledge5713and agree that Buyer retains the right, in its sole and absolute discretion, to5714determine the nature, manner, timing and amount of each and every expenditure5715and business decision related to the Premere Approval.57165717(ii) Product Safety. Buyer shall have the sole5718right to determine the type and quantity of data and testing needed in order to5719assure the safety and efficacy of the related products.57205721(c) Revenue. Buyer shall use commercially reasonable5722efforts to develop, distribute, manufacture, market and sell the Company5723Products, subject to the provisions set forth in subparagraphs (i)-(v) below.5724The parties acknowledge that the nature, timing and extent of such efforts will5725vary product by product and that efforts572657275728385729<PAGE>57305731undertaken with one Company Product may not be undertaken with another Company5732Product, and agree that such differences shall not be the basis for any claim by5733the Company or its members as long as the determinations made by Buyer have a5734commercially reasonable basis.57355736(i) Prices. Buyer shall have absolute discretion in5737setting the sales prices for any Company Product and the sales price set by5738Buyer for any Company Products shall not provide any cause for any claims by the5739Company or its members. Buyer shall be permitted to sell the Company Products5740either on a stand-alone basis or in Bundled Sales.57415742(ii) Distribution. Except in the case of sales in5743Japan (for which no increase shall be made), in calculating Revenue for sales5744made to a third party distributor, the amount of the transfer price will be5745increased by 10% for any sales in Central or South America, and by 15% for sales5746in any other foreign country.57475748(iii) Bundled Sales. In the case of a Bundled Sale,5749the gross invoiced price from the sale of the Company Product shall be5750determined by first calculating the average selling price for each product5751included in the Bundled Sale, in the country of sale, during the one-month5752period ending on the day immediately preceding the first day of the accounting5753month in which the Bundled Sale occurred. The gross invoiced price from the sale5754of the Company Product shall be determined by using the ratio of individual5755average selling price to allocate the Bundled Sale's gross invoiced price. For5756example, if a Bundled Sale included both the Company Product, whose average5757selling price in the country of sale was $1,000, and one Non-Eligible Product5758whose average selling price in the country of sale was $2,000, and the Bundled5759Sale gross invoiced price was $2,500, then the gross invoiced price from the5760sale of the Company Product in connection with the Bundled Sale would be5761$833.33. For purposes hereof:57625763(A) "Bundled Sale" shall mean the sale of5764Company Products together with Non-Eligible Products, where the prices of the5765separate products are not separately stated.57665767(B) "Non-Eligible Product" shall mean a5768product or service sold by Buyer (or any of its Affiliates) other than a Company5769Product.57705771(iv) Buyer Licensing. Revenue from Buyer Licensing5772shall be calculated as follows:57735774(A) If Buyer has licensed Velocimed5775Intellectual Property to a third party licensee (a "Licensee") for use in the5776field of cardiology or in any other medical field in which Buyer, during the5777preceding fiscal year, had $5,000,000 or more of sales revenue, then the Revenue5778attributable to such Buyer Licensing for purposes of Section 1.3(b)(xx) shall5779equal the aggregate of the sales price of each unit sold by such Licensee less,5780(X) transportation, insurance and handling expenses if separately stated on5781Licensee's invoice, (Y) any credits or allowances granted with respect to such5782product in the ordinary course of business to Licensee's customers,578357845785395786<PAGE>57875788including, without limitation, credits and allowances on account of price5789adjustments, returns, discounts, and charge-backs, and (Z) any sales, excise,5790value-added, turnover or similar Taxes and any duties and other governmental5791charges imposed on the importation, use or sale of a product; PROVIDED, HOWEVER,5792that revenue from Bundled Sales or sales made through distributors in foreign5793jurisdictions shall be calculated in accordance with the provisions of Section57944.2(c)(iii) hereof. Buyer will require such Licensee to provide Buyer with5795sufficient information in order for Buyer to satisfy its information reporting5796requirements hereunder.57975798(B) If Buyer has licensed Velocimed5799Intellectual Property to a Licensee for use in any medical field in which Buyer5800had less than $5,000,000 of sales revenue during the preceding fiscal year, then5801the Revenue attributable to such Buyer Licensing for purposes of Section58021.3(b)(xx) shall equal the royalty or license payment received by Buyer for such5803Velocimed Intellectual Property from such Licensee.58045805(v) Distal Device Sales. One-half of revenue5806derived by Buyer from the sale of a Distal Device shall be included in Revenue5807hereunder, without regard to whether such Distal Device constitutes a competing5808product with the Company Products or would, but for the ownership of the5809Velocimed Intellectual Property, infringe on the Velocimed Intellectual5810Property.58115812(d) Status Reports.58135814(i) Mid-Year Reports. Subject to the5815confidentiality provisions set forth in Section 4.2(d)(ii), within 45 days after5816the end of the second fiscal quarter of any Fiscal Year, Buyer shall prepare and5817provide to the Company a report (the "Mid-Year Report") which shall set forth5818(A) Revenue, listed by Company Product or other revenue source, earned during5819the first two fiscal quarters of such Fiscal Year, and (B) a report concerning5820the status of the Premere Approval which shall include an update on regulatory5821and clinical progress.58225823(ii) Confidentiality Agreement. The Company shall5824execute and deliver the confidentiality agreement attached hereto as EXHIBIT A5825(the "Contingent Consideration Confidentiality Agreement"). The Company will not5826provide any information contained in the Mid-Year Report, including information5827related to the calculation of the Revenue-Based Contingent Consideration or the5828status of the Premere Approval, or any other confidential information related to5829the Company Products to any Person, including any director or officer of the5830Company or any holder of Company Membership Units, unless such Person also5831agrees to execute and deliver to Buyer the Contingent Consideration5832Confidentiality Agreement. Notwithstanding anything to the contrary provided5833herein, no Person (including any director or officer of the Company or any5834holder of Company Membership Units) will be entitled to any such confidential5835information if such Person is employed by, a director of, or a consultant to any5836company engaged in a business that is competitive with the Company Products. All5837directors and officers of the Company and all holders of Company Membership5838Units who are either ineligible to obtain information as a result of the5839immediately preceding sentence or who584058415842405843<PAGE>58445845have not executed a Contingent Consideration Confidentiality Agreement shall be5846entitled only to the information provided in the Revenue Notice and the Premere5847Approval Notice.58485849(iii) Meetings. Subject to the provisions of5850Section 4.2(d)(ii), if a Mid-Year Report, Premere Approval Notice or Revenue5851Notice contains information that is of concern to the Company, the Company shall5852have the right, but not the obligation, to have a representative of the Company5853meet with a senior business representative of Buyer (the "Buyer Representative")5854in order to ask high-level business questions of the Buyer Representative (such5855meeting, a "Contingent Consideration Conference"). If the Company shall seek to5856convene a Contingent Consideration Conference, the Company shall deliver notice5857to Buyer of such request and the parties shall then work in good faith to5858arrange for such meeting within 10 days of Buyer's receipt of such notice.58595860(e) Change in Control of Buyer; Permitted Sales.58615862(i) Definitions.58635864(A) "Premere Trigger" means a Change In5865Control in which the Acquiring Person is engaged in the manufacture and sale of5866a product that is in direct competition with the Premere Product, including an5867atrial septal closure device; or58685869(B) "Proxis Trigger" means a Change In5870Control in which the Acquiring Person is engaged in the manufacture and sale of5871any Distal Device or any product that is in direct competition with the Proxis5872Product.58735874(C) A "Change In Control" of Buyer shall mean5875the occurrence of any of the following: (X) the consummation in any transaction5876or series of related transactions of the sale by Buyer of all or substantially5877all of the Buyer's assets to another Person, (Y) the consummation of a5878transaction or series of related transactions, including a merger or5879consolidation with any other Person other than a transaction which results in5880the voting securities of the Buyer outstanding immediately prior thereto5881continuing to represent (either by remaining outstanding or by being converted5882into voting securities of a surviving entity or its parent) at least fifty5883percent of the total voting securities of Buyer or such surviving entity or its5884parent outstanding immediately after such transaction or series of transactions,5885or (Z) any Person or group becomes the "beneficial owner" (as defined in Rule588613d-3 of the Securities Exchange Act of 1934), directly or indirectly, of voting5887securities of Buyer representing fifty percent or more of the total voting power5888represented by Buyer's then outstanding voting securities. The person acquiring5889such assets or voting securities shall herein be referred to as the "Acquiring5890Person".58915892(ii) Payment on a Premere Trigger or Permitted Sale5893of Premere Product.58945895415896<PAGE>58975898(A) If, prior to December 31, 2008, a Premere5899Trigger occurs or Buyer undertakes a Permitted Sale of the Premere Product,5900then:59015902(Y) an amount equal to $100,000,000 less5903any Revenue-Based Contingent Consideration payments that have previously been5904earned pursuant to Section 1.3(c) shall become earned in lieu of any5905Revenue-Based Contingent Consideration payments that would otherwise be earned5906pursuant to Section 1.3(c) and 50% of such amount shall be distributed in5907accordance with the provisions of Section 1.3(e) following the end of each of5908the next two Fiscal Years (unless such Premere Trigger or Permitted Sale occurs5909in FY 2008, in which case 100% of such amount shall be distributed following the5910end of FY 2008); and59115912(Z) the Premere Approval shall be deemed5913to have been granted during the Target Period in which such Premere Trigger or5914Permitted Sale occurs.59155916(B) If a Premere Trigger or Permitted Sale of5917the Premere Product occurs between January 1, 2009 and September 30, 2010, then5918the Premere Approval shall be deemed to have been granted during the Target5919Period in which such Premere Trigger or Permitted Sale occurs.59205921(C) In the event Contingent Consideration is5922earned pursuant to this Section 4.2(e)(ii), then no further Contingent5923Consideration shall ever be earned, and no further amounts shall ever become due5924and payable with regard to the Contingent Consideration.59255926(iii) Payment on a Proxis Trigger. If a Proxis5927Trigger occurs prior to December 31, 2008, then an amount equal to $100,000,0005928less any Revenue-Based Contingent Consideration payments that have previously5929been earned pursuant to Section 1.3(c) shall become earned in lieu of any5930Revenue-Based Contingent Consideration payments that would otherwise be earned5931pursuant to Section 1.3(c) and 50% of such amount shall be distributed in5932accordance with the provisions of Section 1.3(e) following the end of each of5933the next two Fiscal Years (unless such Proxis Trigger occurs in FY 2008, in5934which case 100% of such amount shall be distributed following the end of FY59352008). In the event Contingent Consideration is earned pursuant to this Section59364.2(e)(iii), then no further Revenue-Based Contingent Consideration shall ever5937be earned, and no further amounts shall ever become due and payable with regard5938to the Revenue-Based Contingent Consideration.59395940(iv) Payment on Permitted Sale of the Proxis or5941Venture Product.59425943(A) If, prior to December 31, 2007 or during5944FY 2008 if Buyer made a Revenue-Based Contingent Consideration payment for5945either FY 2006 or FY 2007, Buyer undertakes a Permitted Sale of the Proxis5946Product or the Venture Product, then an amount equal to $100,000,000 less any5947Revenue-Based Contingent Consideration payments that have previously been earned5948pursuant to Section 1.3(c) shall594959505951425952<PAGE>59535954become earned in lieu of any Revenue-Based Contingent Consideration payments5955that would otherwise be earned pursuant to Section 1.3(c) and 50% of such amount5956shall be distributed in accordance with the provisions of Section 1.3(e)5957following the end of each of the next two Fiscal Years. In the event Contingent5958Consideration is earned pursuant to this Section 4.2(e)(iv), then no further5959Revenue-Based Contingent Consideration shall ever be earned, and no further5960amounts shall ever become due and payable with regard to the Revenue-Based5961Contingent Consideration.59625963(B) If, during FY 2008, Buyer undertakes a5964Permitted Sale of the Proxis Product or the Venture Product and Buyer has not5965made a Revenue-Based Contingent Consideration payment for either FY 2006 or FY59662007, then no amounts shall become automatically earned. Instead, Revenue for FY59672008 shall include the sales price of each unit of Proxis Product or Venture5968Product (as the case may be) sold by the party acquiring such assets, less, (X)5969transportation, insurance and handling expenses if separately stated on the5970invoice, (Y) any credits or allowances granted with respect to such product in5971the ordinary course of business to customers, including, without limitation,5972credits and allowances on account of price adjustments, returns, discounts, and5973charge-backs, and (Z) any sales, excise, value-added, turnover or similar Taxes5974and any duties and other governmental charges imposed on the importation, use or5975sale of a product; PROVIDED, HOWEVER, that revenue from Bundled Sales or sales5976made through distributors in foreign jurisdictions shall be calculated in5977accordance with the provisions of Section 4.2(c) hereof. Buyer will require the5978buyer of such assets to provide Buyer with sufficient information in order for5979Buyer to satisfy its information reporting requirements hereunder.59805981(v) Impossibility. Notwithstanding anything to the5982contrary herein, if facts and circumstances at the time of a Change In Control5983or Permitted Sale exist such that it would be impossible for any further5984Revenue-Based Contingent Consideration to become earned, then no Revenue-Based5985Contingent Consideration shall become due and payable pursuant to this Section59864.2(e). Similarly and notwithstanding anything to the contrary herein, if facts5987and circumstances at the time of a Change In Control or Permitted Sale exist5988such that it would be impossible for any Premere Approval-Based Contingent5989Consideration to become earned, then no Premere Approval-Based Contingent5990Consideration shall become due and payable pursuant to this Section 4.2(e). For5991example, and not for purposes of limitation, if clinical trials have shown the5992Premere Product to be ineffective and the Premere Approval will therefore not be5993forthcoming, then no Contingent Consideration shall ever become due and payable5994as a result of the operation of this Section 4.2(e).59955996ARTICLE V -5997ADDITIONAL AGREEMENTS5998---------------------59996000SECTION 5.1 ACCESS TO INFORMATION.60016002(a) The Company shall, and shall cause each of its6003Subsidiaries to, afford to the Buyer and its Subsidiaries and each of their6004accountants, counsel, financial advisors and other representatives of Buyer6005reasonable access, and permit them600660076008436009<PAGE>60106011to make such inspections as they may reasonably require of, during the period6012from the date of this Agreement through the Closing, all of their respective6013properties, books, contracts, commitments and records (including engineering6014records and Tax Returns and the work papers of independent accountants, if6015available and subject to the consent of such independent accountants) and,6016during such period, the Company shall, and shall cause each of its Subsidiaries6017to, (i) promptly make available to Buyer all personnel of the Company and its6018Subsidiaries knowledgeable about matters relevant to such inspections as6019reasonably requested by Buyer and (ii) provide reasonable access to the6020Company's facilities and operations to enable Buyer to conduct a health and6021safety review of the business. No investigation pursuant to this Section 5.16022shall affect the rights of any party with respect to the representations and6023warranties in Sections 3.9, 3.16, 3.25(a) or the right of setoff set forth in6024Section 1.3(e)(vi) of this Agreement. All information obtained by Buyer pursuant6025to this Section 5.1 shall be kept confidential in accordance with the6026Confidentiality Agreement, dated January 5, 2004 between Buyer and the Company,6027as amended as of August 26, 2004, and the Community of Interest Agreement dated6028as of December 27, 2004 by and between Buyer, the Company and the Company Subs6029(the "Confidentiality Agreement").60306031(b) The Company agrees to provide Buyer and its agents6032and representatives with reasonable access to its employees during normal6033working hours following the date of this Agreement, and after consultation with6034the Company to, among other things, deliver offers of continued employment6035contingent upon Closing and to provide information to such employees about6036Buyer.60376038(c) On the Closing Date, the Company will deliver or6039cause to be delivered to Buyer all original agreements, documents, books and6040records and files stored on computer disks or tapes or any other storage medium6041in the possession of the Company relating to the business and operations of the6042Company and the Company Subs.60436044(d) After the Closing, at the Company's request and at6045no cost to the Company, Buyer shall provide the Company with reasonable access6046to such pre-Closing books and records of the Company or the Company Subs as are6047in Buyer's possession and as the Company may reasonably require in connection6048with any Tax Returns, Tax audits, or other bona fide business requirements.60496050(e) After the Closing, at Buyer's request and at no6051cost to the Company, the Company shall provide Buyer with reasonable access to6052such pre-Closing books and records of the Company or the Company Subs as are in6053the Company's possession and as Buyer may reasonably require in connection with6054any Tax Returns, Tax audits, or other bona fide business requirements.60556056SECTION 5.2 FEES AND EXPENSES. Whether or not the Closing occurs,6057the Company and Buyer, respectively, shall each bear their own costs and6058expenses incurred in connection with this Agreement in accordance with its terms6059and the transactions contemplated hereby, including the fees and disbursements6060of counsel, financial advisors and accountants. The Company will pay all of its6061expenses in606260636064446065<PAGE>60666067connection with the transactions contemplated hereby from the Cash Purchase6068Price and not from any other cash or other assets of the Company or Company6069Subs.60706071SECTION 5.3 NO SOLICITATION OR NEGOTIATION. Between the date hereof6072and the earlier of the termination of this Agreement and the Closing Date, the6073Company and the Company Subs will not (nor will the Company or the Company Subs6074permit any of their respective officers, directors, employees, agents,6075representatives or affiliates to), directly or indirectly, take any of the6076following actions with any Person other than Buyer: (i) solicit, initiate,6077entertain or encourage any proposals or offers from, or conduct discussions with6078or engage in negotiations with any Person relating to any possible acquisition6079of the Company or any or all of the Company Subs (whether by way of merger,6080purchase of Company Membership Units, purchase of Shares, purchase of assets or6081otherwise), any portion of Company Membership Units or any other equity interest6082in the Company or any material part of its (tangible or intangible) assets; (ii)6083provide information with respect to it to any Person, other than Buyer, relating6084to, or otherwise cooperate with, facilitate or encourage any effort or attempt6085by any such Person with regard to, any possible acquisition of the Company or6086any or all of the Company Subs (whether by way of merger, purchase of Company6087Membership Units, purchase of Shares, purchase of assets or otherwise), any6088portion of Company Membership Units or any other equity interest in the Company,6089purchase of Shares, or any material part of the Company's or any Company Sub's6090(tangible or intangible) assets; or (iii) enter into any agreement with any6091Person providing for the possible acquisition of the Company or any Company Sub6092(whether by way of merger, purchase of Company Membership Units, purchase of6093Shares, purchase of assets or otherwise), any portion of Company Membership6094Units, purchase of Shares or any other equity interest in the Company or any6095Company Sub or any material part of their respective (tangible or intangible)6096assets. In the event the Company or any Company Sub receives any communication6097from a third party expressing an interest in such a transaction, the Company6098will immediately notify Buyer and provide Buyer with a copy of any written6099communications and a detailed summary of any oral communications.61006101SECTION 5.4 COOPERATION.61026103(a) Subject to the terms and conditions herein6104provided, each of the parties hereto agrees to use all reasonable efforts to6105take or cause to be taken all actions and to do or cause to be done all things6106reasonably necessary, proper or advisable under Applicable Law to consummate and6107make effective the transactions contemplated by this Agreement and each of the6108other Transaction Documents, including using all reasonable efforts to do the6109following: (i) cooperate in the preparation and filing of any filings or6110notifications that must be made under the HSR Act or otherwise to any6111Governmental Entities; (ii) obtain consents of all third parties and6112Governmental Entities necessary, proper, advisable or reasonably requested by6113Buyer or the Company, for the consummation of the transactions contemplated by6114this Agreement; (iii) contest any legal proceeding relating to the transactions6115contemplated by this agreement; and (iv) execute any additional instruments6116reasonably necessary to consummate the transactions contemplated hereby. The6117Company agrees to use all reasonable efforts to encourage the employees of the6118Company Subs to accept any offers of employment extended by Buyer.611961206121456122<PAGE>61236124If at any time after the Closing any further action is necessary to carry out6125the purposes of this Agreement, the proper officers and directors of each party6126hereto shall take all such necessary action.61276128(b) Buyer and the Company will consult and cooperate6129with one another, and consider in good faith the views of one another, in6130connection with any analyses, appearances, presentations, letters, white papers,6131memoranda, briefs, arguments, opinions or proposals made or submitted by or on6132behalf of any party hereto in connection with proceedings under or relating to6133any foreign, federal, or state antitrust, competition, or fair trade law. In6134this regard but without limitation, each party hereto shall promptly inform the6135other of any material communication between such party and the Federal Trade6136Commission, the Antitrust Division of the United States Department of Justice,6137or any other federal, foreign or state antitrust or competition Governmental6138Entity regarding the transactions contemplated herein.61396140(c) Notwithstanding any provision of this Agreement or6141otherwise, in connection with the compliance by the parties hereto with any6142Applicable Law (including the HSR Act and similar merger notification laws or6143regulations of any foreign Governmental Entity) and obtaining the consent or6144approval of any Governmental Entity whose consent or approval may be required to6145consummate the transactions contemplated by this Agreement, Buyer shall not be6146required, or be construed to be required, to proffer to, or agree to: (i) sell6147or hold separate, or agree to sell or hold separate, before or after the6148Closing, any assets, businesses or any interests in any assets or businesses, of6149Buyer, the Company, any Company Sub or any of their respective affiliates (or to6150consent to any sale, or agreement to sell, by Buyer, the Company or any Company6151Sub of any assets or businesses, or any interests in any assets or businesses),6152or any change in or restriction on the operation by Buyer, the Company or any6153Company Sub of any assets or businesses, (ii) enter into any agreement or be6154bound by any obligation that, in Buyer's good faith judgment, would likely have6155an adverse effect on the benefits to Buyer of the transactions contemplated by6156this Agreement, or (iii) take any other action that, in Buyer's good faith6157judgment, would be adverse to Buyer.61586159SECTION 5.5 INTERCOMPANY ACCOUNTS; INDEBTEDNESS. All intercompany6160accounts, payables, receivables, and loans between the Company, on the one hand,6161and each Company Sub, on the other hand, shall be eliminated, released,6162forgiven, paid or satisfied, or assigned, prior to the Closing, as directed by6163Buyer.61646165SECTION 5.6 INTERCOMPANY ARRANGEMENTS. All intercompany contracts or6166arrangements not otherwise described in Section 5.5 that exist between the6167Company on the one hand, and the Company Subs on the other hand, shall be6168cancelled, assigned, or terminated, immediately prior to the Closing, as6169directed by Buyer.61706171466172<PAGE>61736174SECTION 5.7 PUBLIC ANNOUNCEMENTS. Buyer and the Company will issue a6175press release or make another public statement regarding the execution of this6176Agreement in a form that been mutually agreed upon by Buyer and the Company, but6177will in any event include any information Buyer deems is required by applicable6178law or by obligations pursuant to any listing agreement with or rules of any6179national securities exchange. The Company will not issue any other press release6180with respect to the transactions contemplated by this Agreement or otherwise6181issue any verbal or written public statements with respect to such transactions6182without prior consultation with and approval of Buyer, except as may be required6183by applicable law or by obligations pursuant to any listing agreement with or6184rules of any national securities exchange.61856186SECTION 5.8 NOTIFICATION OF CERTAIN MATTERS. Buyer shall use its6187best efforts to give prompt notice to the Company, and the Company shall use its6188best efforts to give prompt notice to Buyer, of: (i) the occurrence, or6189non-occurrence, of any event the occurrence, or non-occurrence, of which it is6190aware and which would be reasonably likely to cause (A) any representation or6191warranty contained in this Agreement and made by it to be untrue or inaccurate6192in any material respect or (B) any covenant, condition or agreement contained in6193this Agreement and made by it not to be complied with or satisfied in all6194material respects, (ii) any failure of Buyer or the Company, as the case may be,6195to comply in a timely manner with or satisfy any covenant, condition or6196agreement to be complied with or satisfied by it hereunder, or (iii) any change6197or event which would be reasonably likely to have a Material Adverse Effect on6198Buyer or the Company Subs, as the case may be; provided, however, that the6199delivery of any notice pursuant to this Section 5.8 shall not limit or otherwise6200affect the remedies available hereunder to the party receiving such notice.62016202SECTION 5.9 COMPANY OPTION PLANS.62036204(a) The Company has taken, or shall take, all requisite6205action so that, as of the Closing, each option to purchase Company Membership6206Units (each, a "Company Option") that is outstanding immediately prior to the6207Closing, whether or not then exercisable or vested, by virtue of the Closing and6208without further action on the part of the Company, Buyer or the holder of that6209Company Option, shall have been irrevocably exercised or forfeited by the holder6210of such Company Option. The Company Subs shall pay the employer portion due, and6211shall withhold and remit to the proper taxing authorities prior to the Closing6212all applicable federal, state and local income, payroll and other taxes required6213to be withheld by the Company with respect to the exercise of Company Options.62146215(b) The Company shall take all action necessary in6216implementing the provisions of this Section 5.9, including amendment of the6217Fourth Amended and Restated Limited Liability Company Agreement of the Company6218dated August 31, 2004 or the Company Nonqualified Class C Membership Units6219Option Plan (effective May 1, 2001) or the related option agreements, to ensure6220that, after giving effect to the foregoing, no Company Option shall be6221exercisable for Company Membership Units following the Closing. The Company6222shall cancel all outstanding and622362246225476226<PAGE>62276228unexercised Company Options and the Company Nonqualified Class C Membership6229Units Option Plan (effective May 1, 2001) at the Closing.62306231(c) The parties acknowledge that the Company Subs shall6232report $1.50 per unit as the fair market value of Class C Membership Units for6233Company Options exercised prior to the date of this Agreement when computing6234compensation income for reporting on IRS Form W-2 or Form 1099 to each holder of6235a Company Option. Buyer acknowledges that such valuation determination was made6236by the Company's Board of Directors prior to the date of this Agreement.62376238(d) The Company agrees to indemnify and hold harmless6239Buyer and each of the Company Subs from any and all federal, state and local6240income tax and payroll tax withholding obligations with respect to exercise of6241the Company Options and all payments made or deemed made at any time to holders6242of Company Options as a result of the exercise of the Company Option.62436244(e) Notwithstanding anything herein to the contrary,6245Buyer agrees that, unless otherwise required by the IRS or other governmental6246agency, no amendment, modification or adjustment will be made with respect to6247the Company Board of Directors' determination of the fair market value of6248Company Membership Units with respect to any taxable period or portion thereof6249ending on or prior to the Closing Date, as such valuation may have been used by6250the Company and its employees, officers and directors for purposes of computing6251income, wages or gains (and related compensation expense) from the exercise of6252outstanding Company Options by any person holding such options. Buyer agrees6253that, unless otherwise required by the IRS or other governmental agency, all6254related income tax, payroll, wage and income reporting (including Forms W-2 and62551099, if applicable), will be made on a basis consistent with any such6256pre-Closing Date valuation by the Company Board of Directors, irrespective of6257whether the applicable Tax Returns with respect thereto are filed by Company, a6258Company Sub, Buyer or its affiliates.62596260(f) For any taxable period of the Company Subs6261beginning before and ending on or after the Closing Date, Buyer shall timely6262prepare and file with the appropriate tax authorities all Tax Returns required6263to be filed after the Closing Date. All such Tax Returns shall be prepared on a6264basis consistent with past practice unless otherwise required by applicable law.62656266(g) Each of the Company, the Company Subs and Buyer6267shall reasonably cooperate, and shall cause their respective affiliates,6268officers, employees, agents, auditors and representatives reasonably to6269cooperate, in preparing and filing all Tax Returns, including maintaining and6270making available to each other all records necessary in connection with Taxes,6271and in resolving all Tax claims with respect to all taxable periods.627262736274627562766277486278<PAGE>62796280SECTION 5.10 NON COMPETE AGREEMENT. The Company shall not, directly6281or indirectly (including, without limitation, through any existing or future6282subsidiary), own, manage, operate, control, enable (whether by license,6283sublicense, assignment or otherwise) or otherwise engage or participate in, or6284be connected as a shareholder, partner, member, lender, guarantor or advisor of,6285or consultant to, any Person that, directly or indirectly, (a) engages in the6286research, design, development, testing, distribution, manufacturing or sale of6287any product that competes with the Company Products, or (b) engages in the6288research, design, development, testing, distribution, manufacturing or sale of6289any product that is competitive to products marketed, sold or distributed by6290Buyer, a Company Sub, or any of their existing or future direct or indirect6291subsidiaries (including partnerships or other entities in which such persons6292hold more than 50% of the combined voting power).62936294SECTION 5.11 WARRANT AGREEMENT. Prior to the Closing, the Company6295shall take all requisite action so that the Amended and Restated Warrant to6296Purchase Class D Membership Units of the Company issued on January 24, 2003 (the6297"Warrant Agreement") shall have been irrevocably exercised, in full, by Silicon6298Valley Bancshares and that the registration right provisions thereof shall have6299been terminated.63006301SECTION 5.12 MEMBER AGREEMENT. Prior to the Closing, the Company6302shall take all requisite action so that, holders of a number of each class of6303the Company Membership Units have executed a Member Agreement, in form and6304substance reasonably satisfactory to Buyer, sufficient to effect,6305contemporaneously with the Closing, (i) the termination of the Fourth Amended6306and Restated Holders Agreement, (ii) the termination of the Second Amended and6307Restated Registration Rights Agreement, (iii) the amendment of the Fourth6308Amended and Restated Limited Liability Company Agreement of the Company as6309contemplated herein, (iv) the implementation of provisions of Section 5.9 of6310this Agreement regarding the treatment of options to acquire Company Membership6311Units, (v) the prohibition of any transfer of the Company Membership Units other6312than by operation of law in the case of the death of an individual or the6313dissolution of an entity, and (vi) the prohibition of the Company from incurring6314any indebtedness or engaging in any business activity other than the6315distribution and management of Contingent Consideration or the monitoring and6316enforcement of the Company's rights hereunder (such agreement, the "Member6317Agreement").63186319SECTION 5.13 ASSIGNMENT BY THE COMPANY. Prior to the Closing, the6320Company will assign to the Company Subs, in form and substance acceptable to the6321Buyer (a) all of any interest the Company has under any Material Contract to6322which it is a party, including the Material Contracts referenced in Section 3.256323of the Company Letter and the non-disclosure agreements referenced in the6324Agreement dated June 25, 2003 by and among the Company, INC, PFO and DMC6325(relating to the enforcement of non-disclosure agreements), and (b) all right,6326title and interest in any Intellectual Property held or licensed by the Company.6327The Buyer may not require that any terms of such assignments expand or enlarge6328the representations and warranties of the Company set forth in this Agreement6329with respect to the matter being assigned.63306331496332<PAGE>63336334SECTION 5.14 INVOICES RECEIVED BY THE COMPANY AFTER THE CLOSING. The6335Company shall deliver to Buyer at the Closing a schedule setting out a good6336faith estimate of all invoices (by amount and by vendor) that are anticipated to6337be rendered to the Company after the Closing Date for bona fide expenses6338incurred on or prior to the Closing Date for the benefit of the business carried6339on by the Company Subs, where the relevant product or service has been or will6340be delivered or furnished to the Company Subs (excluding in any case legal fees,6341advisory fees, or other transaction costs incurred in connection with the6342transactions contemplated by this Agreement, "Eligible Invoices") As to Eligible6343Invoices that are so scheduled or that the Company otherwise notifies to the6344Buyer in writing within 120 days after the Closing Date, the Company shall6345present such invoice to Buyer when received and Buyer shall pay such invoice in6346accordance with its terms or, if Buyer wishes to dispute such invoice with the6347vendor, then the Company shall reasonably cooperate with the Buyer in connection6348with such dispute and Buyer shall indemnify and hold harmless the Company and6349its members, officers, directors, employees and agents from and against any6350claims in respect of such invoice by such vendor, provided, however, that the6351foregoing obligation of Buyer shall be subject always to the Company's6352representations, warranties and covenants under this Agreement and Buyer's6353rights under Article VI and otherwise under this Agreement, such that in the6354case of an Eligible Invoice being rendered for which the Company otherwise would6355be responsible under the terms of this Agreement, Buyer may decline to pay such6356Eligible Invoice or, in its sole discretion, may pay such Eligible Invoice and6357recover as otherwise provided herein. Buyer shall not be responsible for any6358expenses incurred by the Company that are not Eligible Invoices, or for Eligible6359Invoices that are not notified in writing to Buyer within 120 days after the6360Closing Date.63616362ARTICLE VI -6363INDEMNIFICATION6364---------------63656366SECTION 6.1 GENERAL SURVIVAL. The parties agree that, regardless of6367any investigation made by the parties, the representations, warranties,6368covenants and agreements of the parties contained in this Agreement shall6369survive the Closing for a period beginning on the Closing Date and ending at63705:00 p.m., Minneapolis, Minnesota time, on the same day of the month as the6371Closing Date in the month that is 18 months after the Closing Date (the6372"Holdback Termination Date"), except that (a) the indemnities, representations,6373warranties, covenants and agreements due to breaches of representations and6374warranties in Section 3.9 and Section 3.20 shall survive the execution and6375delivery of this Agreement until March 31, 2011, and (b) (i) the covenants of6376Buyer to pay the Contingent Consideration (subject to Section 1.3(e)(vi)) shall6377survive the execution and delivery of this Agreement until the expiration of the6378last Target Period and the payment or offset of any Contingent Consideration, if6379any is due, as provided in this Agreement, and (ii) the obligation of Buyer to6380indemnify Company Indemnitees in Section 6.2(b) hereof (x) insofar as it relates6381to Taxes shall survive until March 31, 2011 and (y) insofar as it relates to6382Intellectual Property of the Company Subs shall survive (subject to Section63831.3(e)(vi)) until the expiration of the last Target Period and the payment or6384offset of any Contingent Consideration, if any is due, as provided in this6385Agreement.63866387506388<PAGE>63896390SECTION 6.2 INDEMNIFICATION IN GENERAL.63916392(a) Indemnification of Buyer. Subject to Article VI,6393from and after the Closing, Buyer, each of the Company Subs, and their6394respective affiliates, officers, directors, stockholders, members,6395representatives and agents (collectively the "Buyer Indemnitees") shall be6396indemnified and held harmless by the Company from and against and in respect of6397any and all Losses incurred by, resulting from, arising out of, relating to,6398imposed upon or incurred by Buyer, any Company Sub, or any other Buyer6399Indemnitee by reason of any of the following:64006401(i) any inaccuracy in or breach of any of the6402Company's representations, warranties, covenants or agreements contained in this6403Agreement or any of the other Transaction Documents (as hereinafter defined) to6404which the Company is a party; and64056406(ii) any misrepresentation contained in any6407certificate furnished to Buyer or any other Indemnitee by or on behalf of the6408Company pursuant to this Agreement or any other Transaction Document.64096410(b) Indemnification of Seller. Subject to Article VI,6411from and after the Closing, the Company and its affiliates, officers, directors,6412stockholders, members, representatives and agents (collectively the "Company6413Indemnitees") shall be indemnified and held harmless by Buyer from and against6414and in respect of any and all Losses incurred by, resulting from, arising out6415of, relating to, imposed upon or incurred by any Company Indemnitee by reason of6416any third party claim arising from conduct of the business of the Company Subs6417prior to the Closing (including the Velocimed Intellectual Property as it exists6418as of the date of the Closing) so long as the circumstances relating to such6419third party claim would not otherwise constitute a breach of the Company's6420representations, warranties, covenants and agreements contained herein.64216422(c) Definitions.64236424(i) The term, "Losses" means (A) any and all6425deficiencies, judgments, settlements, demands, claims, suits, actions or causes6426of action, assessments, liabilities, losses, damages (whether direct or6427indirect), interest, fines and penalties, (B) costs, expenses (including6428reasonable legal, accounting and other costs and expenses of professionals)6429incurred in connection with investigating, defending, settling or satisfying any6430and all demands, claims, actions, causes of action, suits, proceedings,6431assessments, judgments or appeals, and in seeking indemnification therefor, and6432(C) interest on any of the foregoing from the date incurred until paid at the6433prime rate published from time to time by Wells Fargo Bank, N.A.64346435(ii) The term "Transaction Documents" means, this6436Agreement, the Confidentiality Agreement, the Contingent Consideration6437Confidentiality Agreement, the Member Agreement, and the certificates6438contemplated by Article VII.64396440516441<PAGE>64426443(iii) The term "Indemnitee" means either a Buyer6444Indemnitee or a Company Indemnitee, as the case may be, and the term6445"Indemnitor" means either Buyer or the Company, as appropriate. Any claim for6446indemnification under this Article VI shall be referred to as an Indemnification6447Claim (an "Indemnification Claim"),64486449SECTION 6.3 MANNER OF INDEMNIFICATION.64506451(a) To provide a fund against which a Buyer Indemnitee6452may assert an Indemnification Claim, the Holdback Amount shall be withheld by6453Buyer in accordance with Section 1.2.64546455(b) If a Buyer Indemnitee is entitled to be indemnified6456for Losses, the obligation to pay the amount of indemnification owing hereunder6457shall first be satisfied from the Holdback Amount and if the Holdback Amount is6458exhausted, by reduction of any accrued and unpaid Contingent Consideration. In6459the event an Indemnification Claim by Buyer arises and the amount of Loss in6460respect thereof has not yet been determined, a portion of the Holdback Amount6461and/or any accrued and unpaid Contingent Consideration sufficient to satisfy the6462bona fide estimated maximum Loss shall be retained until the amount of Loss has6463been determined, and shall then be applied or distributed as provided for6464herein.64656466(c) Each Indemnification Claim shall be made only in6467accordance with this Article VI.64686469SECTION 6.4 NOTICE OF CLAIMS.64706471(a) Any Indemnitee seeking indemnification hereunder6472shall give to Indemnitor a notice (a "Claim Notice") specifying in reasonable6473detail the facts giving rise to any Indemnification Claim and shall include in6474such Claim Notice (if then known) the amount or the method of computation of the6475amount of such Indemnification Claim, and a reference to the provision of this6476Agreement or any agreement, certificate or instrument executed pursuant hereto6477or in connection herewith upon which such Indemnification Claim is based;6478PROVIDED, that a Claim Notice in respect of any action at law or suit in equity6479by or against a third Person as to which indemnification will be sought shall be6480given promptly after the action or suit is commenced; and PROVIDED FURTHER, that6481failure to give such notice shall not relieve the Indemnitor of its obligations6482hereunder except to the extent it shall have been prejudiced by such failure.64836484(b) The Indemntior shall have fifteen days after the6485giving of any Claim Notice pursuant hereto to provide such Indemnitee with6486notice that it disagrees with the amount or method of determination set forth in6487the Claim Notice (the "Disagreement Notice"). If a timely Disagreement Notice is6488not received or to the extent an item is not objected to in the Disagreement6489Notice, the Claim Notice shall be deemed to have been accepted and final and6490binding on the parties, absent manifest error. If the Indemnitor delivers a6491timely Disagreement Notice, the parties shall resolve such conflict in6492accordance with the procedures set forth in Section 6.4(c).64936494526495<PAGE>64966497(c) If Indemntior shall have provided a Disagreement6498Notice, the parties will attempt in good faith to agree upon the rights of the6499respective parties with respect to each of such claims. If the parties should so6500agree, a memorandum setting forth such agreement will be prepared and signed by6501Buyer and the Company. If such claim is an Indemnification Claim for Losses6502incurred by a Buyer Indemnitee, Buyer will retain or distribute the Holdback6503Amount and Contingent Consideration as provided therein. In the event the6504parties shall fail to reach an agreement within thirty days after the date on6505which an Indemnitor provided a Disagreement Notice, the dispute shall be6506submitted to arbitration in accordance with the provisions of Section 9.6.65076508SECTION 6.5 THIRD-PARTY CLAIMS. If an Indemnitee becomes aware of a6509third-party claim that such Indemnitee believes, in good faith, may result in an6510Indemnification Claim, such Indemnitee shall promptly notify the Indemnitor of6511such claim, and the Indemnitor shall be entitled to participate in any defense6512of such claim; PROVIDED, HOWEVER, that failure to give such notice shall not6513relieve the Indemnitor of its obligations hereunder except to the extent it6514shall have been prejudiced by such failure. Notwithstanding the immediately6515preceding sentence, Buyer shall conduct and control such defense, but shall not6516settle any such claim without the consent of the Company, such consent not to be6517unreasonably withheld; PROVIDED, HOWEVER, that, if the consent of the Company is6518so obtained, the Company shall not have any power or authority to object under6519any provision of this Article VI to the amount of any demand by Buyer for6520Indemnification with respect to such settlement.65216522SECTION 6.6 WAIVER OF DEFENSES. To the maximum extent permitted by6523law, the Company and Buyer each waive any claim or defense that the indemnity6524provided for herein or any other provision of any Transaction Document is6525unenforceable under any provision of Applicable Law.65266527SECTION 6.7 TREATMENT OF INDEMNITY PAYMENTS. All indemnity payments6528made to Buyer will be, and will be treated as, an adjustment to the Total6529Consideration.65306531SECTION 6.8 LIMITS ON INDEMNIFICATION.65326533(a) Except in the event of intentional fraud, the6534Holdback Amount and, if applicable, the setoff against any accrued and unpaid6535Contingent Consideration shall be the sole and exclusive remedy of the Buyer6536Indemnitees from and after the Closing for any claims arising under this6537Agreement or in connection with the transactions contemplated hereby, including6538claims of breach of any representation, warranty or covenant in this Agreement.65396540(b) No party shall be entitled to any recovery under6541this Agreement for its own special, incidental or consequential damages. Nothing6542in this Section 6.8 shall prevent any Indemnitee from being indemnified for all6543components of awards against them in actions by unrelated third parties,6544including, without limitation, special, incidental or consequential damage6545components.65466547536548<PAGE>65496550(c) No Buyer Indemnitee shall be entitled to6551indemnification for any Losses arising under Section 6.2(a) until the aggregate6552amount of all Losses under all claims of all Buyer Indemnities under Section65536.2(a) plus any claims for setoff of Losses pursuant to Section 1.3(e)(vi)(B)6554exceed $675,000 (the "Deductible"), and, Buyer shall be entitled to retain all6555or a portion the Holdback Amount or make an offset under Section 6.2(a) only in6556the amount by which such aggregate Losses exceed the Deductible, except that:6557all amounts due to Indemnitees related to Losses for Taxes (whether under6558Section 3.9 or Section 5.9) or Losses from a breach of the representations and6559warranties in Section 3.2 or Section 3.20 shall not be subject to the provisions6560of this Section 6.8(c) and shall be paid in full without any regard to the6561Deductible. The foregoing shall not limit Buyer's rights under Section65621.3(e)(vi) except as specifically provided in Section 1.3(e)(vi). Further,6563except as provided by Section 1.3(e)(vi) and except in the event of intentional6564fraud, the total liability of the Company under this Agreement or in connection6565with the transactions contemplated hereby shall not exceed the sum of (i) the6566Holdback Amount plus (ii) fifty percent of the Contingent Consideration (the6567parties' intention being that an offset claim under Section 6.2(a) and an offset6568claim arising under 1.3(e)(vi) could result in claims up to 100% of the6569Contingent Consideration, but in no event more than the amount set forth in6570Section 6.8(a)).65716572(d) Except for the representations and warranties in6573Sections 3.9, 3.16 and 3.25(a), no Indemnitee shall be entitled to bring an6574Indemnification Claim for the breach of any representation or warranty if the6575Buyer had actual knowledge on or prior to the Closing of the facts, events,6576circumstances or omissions giving rise to such claim.65776578(e) For purposes of this Agreement, any Loss otherwise6579recoverable shall be (i) reduced by the amount of any insurance proceeds6580actually recovered by the Indemnitee in connection with such Loss and by the6581amount of Tax benefit realized by the Indemnitee arising from the incurrence or6582payment of such Loss, and (ii) increased to take account of any increased6583insurance premiums arising from the incurrence or payment of such Loss and the6584amount of any Tax cost incurred from the receipt of the indemnity payment6585hereunder, in the case of (i) and (ii) as reasonably determinable at the time6586such Loss is otherwise being determined under this Agreement.65876588ARTICLE VII -6589CONDITIONS PRECEDENT TO THE CLOSING6590-----------------------------------65916592SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE6593CLOSING. The respective obligations of each party to effect the Closing shall be6594subject to the fulfillment at or prior to the Closing of each of the following6595conditions:65966597(a) HSR Approvals. The waiting period (and any6598extension thereof) applicable to the consummation of the transactions6599contemplated by this Agreement under the HSR Act shall have expired or been6600terminated.66016602(b) No Order. No court or other Governmental Entity6603having jurisdiction over the Company or Buyer, or any of their respective6604Subsidiaries, shall660566066607546608<PAGE>66096610have enacted, issued, promulgated, enforced or entered any law, rule,6611regulation, executive order, decree, injunction or other order (whether6612temporary, preliminary or permanent) which is then in effect and has the effect6613of, directly or indirectly, restraining, prohibiting or restricting the6614transactions contemplated by this Agreement or any of the transactions6615contemplated hereby; provided, however, that the provisions of this Section66167.1(c) shall not be available to any party whose failure to fulfill its6617obligations pursuant to Section 5.4 shall have been the cause of, or shall have6618resulted in, the enforcement or entering into of any such law, rule, regulation,6619executive order, decree, injunction or other order.66206621SECTION 7.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE6622CLOSING. The obligation of the Company to effect the Closing shall be subject to6623the fulfillment at or prior to the Closing of each of the following additional6624conditions:66256626(a) Performance of Obligations; Representations and6627Warranties. (i) Buyer shall have performed in all material respects each of its6628agreements and covenants contained in this Agreement required to be performed on6629or prior to the Closing, (ii) each of the representations and warranties of6630Buyer contained in this Agreement that is qualified by materiality shall have6631been true and correct when made, and shall be true and correct at and as of the6632Closing as if made on and as of such date (other than representations and6633warranties which address matters only as of a certain date other than the date6634hereof, which shall be true and correct as of such certain date), and (iii) each6635of the representations and warranties that is not so qualified shall have been6636true and correct in all material respects when made, and shall be true and6637correct in all material respects at and as of the Closing as if made on and as6638of such date (other than representations and warranties which address matters6639only as of a certain date which shall be true and correct in all material6640respects as of such certain date). The Company shall have received certificates6641signed on behalf of each of Buyer and Sub by one of its officers to such effect.66426643(b) Opinion of Counsel. The Company shall have received6644an opinion of counsel from the General Counsel of Buyer, dated the Closing Date,6645in substantially the form attached hereto as EXHIBIT B.66466647SECTION 7.3 CONDITIONS TO OBLIGATIONS OF BUYER AND SUB TO EFFECT6648THE CLOSING. The obligations of Buyer and Sub to effect the Closing shall be6649subject to the fulfillment at or prior to the Closing of each of the following6650additional conditions:66516652(a) Performance of Obligations; Representations and6653Warranties. (i) The Company shall have performed in all material respects each6654of its covenants and agreements contained in this Agreement required to be6655performed on or prior to the Closing, (ii) each of the representations and6656warranties of the Company contained in this Agreement that is qualified by6657materiality shall have been true and correct when made, and shall be true and6658correct at and as of the Closing as if made on and as of such date (other than6659representations and warranties which address matters only666066616662556663<PAGE>66646665as of a certain date other than the date hereof, which shall be true and correct6666as of such certain date), and (iii) each of the representations and warranties6667that is not so qualified shall have been true and correct in all material6668respects when made, and shall be true and correct in all material respects at6669and as of the Closing as if made on and as of such date (other than6670representations and warranties which address matters only as of a certain date6671which shall be true and correct in all material respects as of such certain6672date). Buyer shall have received a certificate signed on behalf of the Company6673by its Chief Executive Officer or its Chief Financial Officer to such effect.66746675(b) Opinion of Counsel. Buyer shall have received an6676opinion of counsel from Oppenheimer, Wolff & Donnelly LLP counsel to the6677Company, dated the Closing Date, in substantially the form attached hereto as6678EXHIBIT C.66796680(c) Consents. (i) The Company shall have obtained the6681consent or approval of each Person or Governmental Entity (other than approvals6682under the HSR Act) whose consent or approval shall be required in connection6683with the transactions contemplated hereby under any loan or credit agreement,6684note, mortgage, indenture, lease or other agreement or instrument, except as to6685which the failure to obtain such consents and approvals would not, individually6686or in the aggregate, have a Material Adverse Effect on the Company Subs or Buyer6687or upon the consummation of the transactions contemplated in this Agreement.66886689(ii) In obtaining any approval or consent required6690to consummate any of the transactions contemplated herein, no Governmental6691Entity shall have imposed or shall have sought to impose any condition, penalty6692or requirement which, individually or in aggregate would have a Material Adverse6693Effect on the Company Subs or Buyer.66946695(d) Material Adverse Change. Since the date of this6696Agreement, there shall have been no Material Adverse Change with respect to the6697Company Subs. Buyer shall have received a certificate signed on behalf of the6698Company by the Chief Executive Officer or the Chief Financial Officer of the6699Company to such effect.67006701(e) Company Option Plans. The Company shall have taken6702all action required to be taken by it to implement the provisions of Section67035.9.67046705(f) Director and Officer Resignations. All of the6706Directors of the Company Subs and any officers thereof designated by Buyer,6707shall have tendered their resignations in form and substance satisfactory to6708Buyer.67096710(g) Employment and Consulting Agreements. The6711Employment Agreement and the Consulting Agreement with Dr. Dennis Wahr shall6712remain in full force and effect and shall not have been rescinded by Dr. Wahr.6713The Inventions Assignment, Confidentiality and Non-Competition Agreement entered6714into by the Company Subs with employees of the Company Subs shall remain6715effective, and shall671667176718566719<PAGE>67206721not have been waived, released or modified by the Company or any of the Company6722Subs.67236724(h) Member Agreement. The Member Agreement shall have6725been executed by members holding 85% of the Company Membership Units, shall be6726in form and substance reasonably satisfactory to Buyer, and shall be binding6727upon 100% of the Company Membership Units.67286729(i) Silicon Valley Bank Warrant. The Company shall6730deliver to Buyer written evidence, in form and substance reasonably satisfactory6731to Buyer, of the irrevocable exercise of the Warrant Agreement and the6732termination of any other rights associated therewith.67336734(j) Company Assignment. The Company shall have complied6735with the provisions in Sections 5.5, 5.6 and 5.13 in form and substance6736reasonably satisfactory to Buyer.67376738ARTICLE VIII -6739TERMINATION, AMENDMENT AND WAIVER6740---------------------------------67416742SECTION 8.1 TERMINATION. This Agreement may be terminated at any6743time prior to the Closing:67446745(a) by mutual written consent of Buyer and the Company;67466747(b) by either Buyer or the Company if the other party6748shall have failed to comply in any material respect with any of its covenants or6749agreements contained in this Agreement required to be complied with prior to the6750date of such termination, which failure to comply has not been cured within five6751business days following receipt by such other party of written notice of such6752failure to comply;67536754(c) by Buyer if there has been a breach of a6755representation or warranty of the Company that gives rise to a failure of the6756fulfillment of a condition of the Buyer's obligations to effect the transactions6757contemplated by this Agreement pursuant to Section 7.3(a)(ii) and (iii) or by6758Company if there has been a breach of a representation or warranty of the Buyer6759that gives rise to a failure of the fulfillment of a condition of the Company's6760obligations to effect the transactions contemplated by this Agreement pursuant6761to Section 7.2(a)(ii) and (iii), in each case which breach has not been cured6762within five business days following receipt by the breaching party of written6763notice of the breach; or67646765(d) by either Buyer or the Company if: (i) the Closing6766has not occurred on or prior to the close of business on the later of the date6767that is 180 days after the date of this Agreement or the date 75 days after the6768waiting period applicable to the Closing under the HSR Act has expired or been6769terminated; PROVIDED, HOWEVER, that the right to terminate this Agreement6770pursuant to this Section 8.1(d)(i) shall not be available to any party whose6771failure to fulfill any of its obligations contained in this Agreement has been6772the cause of, or resulted in, the failure of the Closing to have occurred on or6773prior to677467756776576777<PAGE>67786779the aforesaid date; or (ii) any court or other Governmental Entity having6780jurisdiction over a party hereto shall have issued an order, decree or ruling or6781taken any other action (which order, decree, ruling or other action the parties6782shall have used their reasonable efforts to resist, resolve or lift, as6783applicable, subject to the provisions of Section 5.4) permanently enjoining,6784restraining or otherwise prohibiting the transactions contemplated by this6785Agreement and such order, decree, ruling or other action shall have become final6786and nonappealable.67876788SECTION 8.2 EFFECT OF TERMINATION. In the event of termination of6789this Agreement by either Buyer or the Company, as provided in Section 8.1, this6790Agreement shall forthwith become void and there shall be no liability hereunder6791on the part of the Company, Buyer or their respective officers or directors6792(except for the last sentence of Section 5.1(a) and the entirety of Section 5.2,6793which shall survive the termination); PROVIDED, HOWEVER, that nothing contained6794in this Section 8.2 shall relieve any party hereto from any liability for any6795breach of a representation, warranty, or covenant contained in this Agreement.6796Notwithstanding the foregoing, if either party terminates this Agreement prior6797to the Closing as a result of any representation or warranty contained in this6798Agreement becoming untrue due to circumstances that arise after the date hereof6799and prior to the Closing, such party's sole remedy for such breach shall be the6800termination of this Agreement in accordance with this Article VIII without any6801liability or cost to the terminating party.68026803SECTION 8.3 AMENDMENT. This Agreement may not be amended except by6804an instrument in writing signed on behalf of each of the parties hereto.68056806SECTION 8.4 WAIVER. At any time prior to the Closing, the parties6807hereto may (a) extend the time for the performance of any of the obligations or6808other acts of the other parties hereto, (b) waive any inaccuracies in the6809representations and warranties contained herein or in any document delivered6810pursuant hereto and (c) waive compliance with any of the agreements or6811conditions contained herein for the benefit of such party which may legally be6812waived. Any agreement on the part of a party hereto to any such extension or6813waiver shall be valid only if set forth in an instrument in writing signed on6814behalf of such party. No delay on the part of any party hereto in exercising any6815right, power or privilege hereunder shall operate as a waiver thereof, nor shall6816any waiver on the part of any party hereto of any right, power or privilege6817hereunder operate as a waiver of any other right, power or privilege hereunder,6818nor shall any single or partial exercise of any right, power or privilege6819hereunder preclude any other or further exercise thereof or the exercise of any6820other right, power or privilege hereunder. The failure of any party to this6821Agreement to assert any of its rights under this Agreement or otherwise shall6822not constitute a waiver of those rights.68236824682568266827682868296830586831<PAGE>68326833ARTICLE IX -6834GENERAL PROVISIONS6835------------------68366837SECTION 9.1 NOTICES. All notices and other communications hereunder6838shall be in writing and shall be deemed given when delivered personally, one6839business day after being delivered to an overnight courier or when sent by6840facsimile on a business day (and if not sent on a business day, then on the next6841succeeding business day) with a confirmatory copy sent by overnight courier to6842the parties at the following addresses (or at such other address for a party as6843shall be specified by like notice):68446845(a) if to Buyer, to:68466847St. Jude Medical, Inc.6848One Lilleihei Plaza6849St. Paul, MN 551176850Attn: General Counsel6851Facsimile (651) 481-769068526853with a copy to: (which shall not constitute notice)68546855Gibson Dunn & Crutcher LLP68561881 Page Mill Road6857Palo Alto, CA 94304-11256858Attn: Joseph Barbeau, Esq.6859Facsimile: (650) 849-533368606861(b) if to the Company, to:68626863Velocimed, LLC68646550 Wedgwood Road North6865Suite 1506866Maple Grove, MN 553116867Attn: Dennis Wahr6868Facsimile: (763) 488-978068696870with a copy to (which shall not constitute notice):68716872Oppenheimer, Wolff & Donnelly LLP6873Plaza VII, Suite 3300687445 South Seventh Street6875Minneapolis, MN 554026876Attn: William Kaufman6877Facsimile: (612) 607-710068786879or to such other address as the person to whom notice is given may have6880previously furnished to the others in writing in the manner set forth above. Any6881party hereto may give any notice, request, demand, claim or other communication6882hereunder using any688368846885596886<PAGE>68876888other means (including ordinary mail or electronic mail), but no such notice,6889request, demand, claim or other communication shall be deemed to have been duly6890given unless and until it actually is received by the individual for whom it is6891intended.68926893SECTION 9.2 INTERPRETATION.68946895(a) When a reference is made in this Agreement to a6896Section, such reference shall be to a Section of this Agreement unless otherwise6897indicated. The table of contents and headings contained in this Agreement are6898for reference purposes only and shall not affect in any way the meaning or6899interpretation of this Agreement. Whenever the words "include," "includes" or6900"including" are used in this Agreement, they shall be deemed to be followed by6901the words "without limitation."69026903(b) "Applicable Laws" or "Applicable Law" means, with6904respect to any Person, any domestic or foreign, federal, state or local statute,6905law, ordinance, rule, regulation, order, writ, injunction, judgment, decree or6906other requirement of any Governmental Entity existing as of the date hereof or6907as of the Closing applicable to such Person or any of its properties, assets,6908officers, directors, employees, consultants or agents.69096910(c) "Encumbrance" means any charge, claim, limitation,6911condition, equitable interest, mortgage, lien, option, pledge, security6912interest, easement, encroachment, right of first refusal, adverse claim or6913restriction of any kind, including any restriction on transfer or other6914assignment, as security or otherwise, of or relating to use, quiet enjoyment,6915voting, transfer, receipt of income or exercise of any other attribute of6916ownership.69176918(d) "Permitted Lien" means (i) any statutory liens for6919Taxes that are not yet due and payable or are being contested in good faith by6920appropriate proceedings and are disclosed in Section 3.9 of the Company Letter,6921(ii) statutory or common law liens to secure obligations to landlords, lessors,6922or renters under leases or rental agreements confined to the premises rented,6923(iii) deposits or pledges made in connection with, or to secure payment of,6924workers' compensation, unemployment insurance or other social security programs6925mandated under Applicable Law, or (iv) statutory or common law liens in favor of6926carriers, warehousemen, mechanics and materialmen, to secure claims for labor,6927materials or supplies incurred in the ordinary course of business.69286929(e) "Person" means any individual, corporation,6930partnership, limited partnership, limited liability company, trust, association6931or entity or Governmental Entity or authority.69326933(f) "Subsidiary" means any corporation, partnership,6934limited liability company, joint venture or other legal entity of which Buyer or6935Company, as the case may be (either alone or through or together with any other6936Subsidiary), owns or controls, directly or indirectly, 50% or more of the stock6937or other equity interests the holders of which are generally entitled to vote6938for the election of the board of directors or693969406941606942<PAGE>69436944other governing body of such corporation, partnership, limited liability6945company, joint venture or other legal entity.69466947SECTION 9.3 COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may6948be executed in counterparts, all of which shall be considered one and the same6949agreement, and shall become effective when one or more counterparts have been6950signed by each of the parties and delivered to the other parties. A facsimile6951signature of this Agreement or any Transaction Document shall be valid and have6952the same force and effect as a manually signed original.69536954SECTION 9.4 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This6955Agreement and the Confidentiality Agreement constitute the entire agreement and6956supersede all prior agreements and understandings, both written and oral, among6957the parties with respect to the subject matter hereof. The parties stipulate and6958agree that no prior drafts, memoranda, notes, or discussions relating to this6959Agreement shall be used at any time by either party in any arbitration, trial or6960hearing, or be used or discoverable in any discovery process pertaining thereto,6961to prove or evidence in any way the intention or understanding of either party6962with respect to any provision or part of this Agreement. This Agreement is not6963intended to confer upon any Person other than the parties hereto any rights or6964remedies hereunder.69656966SECTION 9.5 GOVERNING LAW. This Agreement shall be governed by, and6967construed in accordance with, the laws of the State of Minnesota, without regard6968to the conflicts of laws provisions thereof that would apply the laws of any6969other state.69706971SECTION 9.6 DISPUTE RESOLUTION.69726973(a) Any and all disputes, controversies, or claims6974arising out of, or relating to this Agreement or any of the Transaction6975Documents or the validity, interpretation, breach or termination thereof (a6976"Dispute"), shall be resolved in accordance with the procedures set forth in6977this Agreement. If a dispute cannot be resolved at the operational level, either6978party may submit such Dispute to binding arbitration conducted in Chicago,6979Illinois, or such other location upon which the parties may mutually agree in6980writing, before a single neutral arbitrator in an arbitration by JAMS under its6981Streamlined Arbitration Rules and Procedures (revised version adopted April69822002) ("JAMS Streamlined Rules"), which rules can be viewed at www.jamsadr.com.6983The JAMS Streamlined Rules will govern all aspects of the arbitration except as6984modified by this Section 9.6.69856986(b) If a party (the "Notifying Party") wishes to submit6987a Dispute to JAMS, the Notifying Party shall deliver a written notice (a6988"Dispute Notice") together with a copy of this Section 9.6 to the other party6989(the "Responding Party") and to JAMS. In the event that either party commences a6990dispute by delivering a Dispute Notice, the other party may assert any counter6991claims it may have. Following receipt by the Responding Party of the Dispute6992Notice, if any, the parties shall promptly meet (but in no event later than ten6993business days from the date of receipt by the Responding Party699469956996616997<PAGE>69986999of the Dispute Notice) to agree on the rights of the respective parties with7000respect to each of such claims identified by the Dispute Notice. If the parties7001should so agree on a resolution of such dispute or disputes, a written7002memorandum (the "Memorandum"), setting forth such agreement, shall be prepared7003and signed by both parties. If the parties are unable to come to an agreement,7004the dispute shall be resolved by the binding arbitration procedures set forth in7005this Section 9.6.70067007(c) The sole arbitrator, who shall be selected in7008accordance with the JAMS Streamlined Rules, shall be a retired or former judge7009of any Federal court appointed under Article III of the United States7010Constitution or any trial court of general jurisdiction or higher court in the7011State of Minnesota or the State of Illinois. Eligible arbitrator candidates7012shall not be limited to those candidates who are listed on the JAMS "List of7013Neutrals". The arbitration shall be governed by the United States Arbitration7014Act, 9 U.S.C. ss.ss. 1-16. The arbitrator shall apply Minnesota substantive law7015to the proceeding.70167017(d) In addition to the exchange of information and7018discovery authorized by JAMS Streamlined Rule 13, each party may take up to7019three 7-hour long depositions before the Arbitration Hearing.70207021(e) Unless the parties agree otherwise, the Arbitration7022Hearing under JAMS Streamlined Rule 17 will commence within 60 days of the date7023of the JAMS Commencement Letter described in Streamlined Rule 5, and the7024Arbitration Hearing will not last more than four 7-hour days (with the hearing7025time equally divided between the parties). The Arbitrator will issue the Award7026under Streamlined Rule 19(a) within 7 calendar days of the last day of the7027Arbitration Hearing (rather than the 30 calendar days provided for under JAMS7028Streamlined Rule 19(a)).70297030(f) The arbitrator shall prepare in writing and provide7031to the parties an award including factual findings and the reasons on which the7032decision is based. The award and decision of the arbitrator shall be final and7033binding and may be submitted to any court having jurisdiction solely for the7034purpose of confirmation of the award and entry of judgment. The arbitrator shall7035have the right to award or include in his award only compensatory damages (with7036interest on unpaid amounts from the date due until paid), and shall not have the7037right to award specific performance, injunctive relief or exemplary or punitive7038damages. Any controversy concerning whether a Dispute is an arbitrable dispute7039shall be determined by the arbitrator. The parties intend that this agreement to7040arbitrate be valid, specifically enforceable and irrevocable.70417042(g) The provisions of this Section 9.6 shall survive7043the expiration or early termination of this Agreement indefinitely.70447045SECTION 9.7 WAIVERS. Each of the parties hereby irrevocably waives7046all right to trial by jury in any action, proceeding or counterclaim (whether7047based on contract, tort or otherwise) arising out of or relating to this7048Agreement or any other Transaction Document or the transactions contemplated7049hereby or thereby. Each of the705070517052627053<PAGE>70547055parties hereby further irrevocably waives any right to specific performance,7056injunctive relief or exemplary or punitive damages.70577058SECTION 9.8 ASSIGNMENT. Neither this Agreement nor any of the7059rights, interests or obligations hereunder shall be assigned by any of the7060parties hereto (whether by operation of law or otherwise) without the prior7061written consent of the other parties. Subject to the preceding sentence, this7062Agreement will be binding upon, inure to the benefit of and be enforceable by7063the parties and their respective successors or assigns.70647065SECTION 9.9 SEVERABILITY. If any term or other provision of this7066Agreement is invalid, illegal or incapable of being enforced by any rule of law,7067or public policy, all other terms, conditions and provisions of this Agreement7068shall nevertheless remain in full force and effect so long as the economic and7069legal substance of the transactions contemplated hereby are not affected in any7070manner materially adverse to any party. Upon such determination that any term or7071other provision is invalid, illegal or incapable of being enforced, the parties7072shall negotiate in good faith to modify this Agreement so as to effect the7073original intent of the parties as closely as possible in a mutually acceptable7074manner in order that the transactions contemplated by this Agreement may be7075consummated as originally contemplated to the fullest extent possible.70767077SECTION 9.10 DESCRIPTIVE HEADINGS. The descriptive headings herein7078are inserted for convenience of reference only and are not intended to be part7079of or to affect the meaning or interpretation of this Agreement.70807081SECTION 9.11 DEFINED TERMS. Each of the following terms is defined7082in the Section identified below:70837084501(k)'s.........................................................Section 3.8(b)70857086Acquiring Person.................................................Section 4.2(e)7087Affiliated Person...............................................Section 3.23(a)7088Agreement..............................................................Preamble7089Alternate Payment............................................Section 1.3(c)(ii)7090Applicable Law...................................................Section 9.2(b)7091Applicable Laws..................................................Section 9.2(b)7092Applicable Worker Safety Laws......................................Section 3.137093Auditor..........................................................Section 1.3(e)70947095Bundled Sale.....................................................Section 4.2(c)7096Buyer..................................................................Preamble7097Buyer Indemnitees................................................Section 6.2(a)7098Buyer Licensing..................................................Section 1.3(b)7099Buyer Representative.............................................Section 4.2(d)71007101Cash Purchase Price..............................................Section 1.1(a)7102Change In Control................................................Section 4.2(e)7103Claim Notice.....................................................Section 6.4(a)7104Closing..........................................................Section 1.5(a)71057106637107<PAGE>71087109Closing Date.....................................................Section 1.5(a)7110Code................................................................Section 3.97111Company................................................................Preamble7112Company Balance Sheet............................................Section 3.5(a)7113Company Balance Sheet Date.......................................Section 3.5(a)7114Company Business Personnel.........................................Section 3.157115Company Charter..................................................Section 3.1(a)7116Company Indemnitees..............................................Section 6.2(b)7117Company Letter..........................................Preamble to Article III7118Company Marks...................................................Section 3.16(c)7119Company Membership Units............................................Section 3.37120Company Option...................................................Section 5.9(a)7121Company Patents.................................................Section 3.16(b)7122Company Permits..................................................Section 3.8(a)7123Company Plan....................................................Section 3.12(c)7124Company Products.................................................Section 1.3(b)7125Company Registered Copyrights...................................Section 3.16(b)7126Company Registered IP...........................................Section 3.16(b)7127Company Registered Marks........................................Section 3.16(b)7128Company Sub............................................................Preamble7129Company Subs...........................................................Preamble7130Compensation Agreements.........................................Section 3.11(a)7131Confidentiality Agreement........................................Section 5.1(a)7132Consulting Agreements..................................................Recitals7133Contingent Consideration.........................................Section 1.1(b)7134Contingent Consideration Conference..............................Section 4.2(d)7135Contingent Consideration Confidentiality Agreement...............Section 4.2(d)7136Contingent Consideration Distribution Date.......................Section 1.3(b)7137Contingent Consideration Notice..................................Section 1.3(b)7138Contingent Consideration Period..................................Section 1.3(a)7139Copyrights......................................................Section 3.16(a)71407141Deductible.......................................................Section 6.8(c)7142Disagreement Notice..............................................Section 6.4(b)7143Dispute..........................................................Section 9.6(a)7144Dispute Notice...................................................Section 9.6(b)7145Distal Device....................................................Section 1.3(b)7146DMC....................................................................Preamble7147DMC Shares.......................................................Section 3.2(c)71487149Eligible Invoices..................................................Section 5.147150Employment Agreements..................................................Recitals7151Encumbrance......................................................Section 9.2(c)7152Environmental Law...........................................Section 3.20(a)(ii)7153Environmental Permit.......................................Section 3.20(a)(iii)7154ERISA...........................................................Section 3.12(a)7155ERISA Affiliate.................................................Section 3.12(c)71567157647158<PAGE>71597160FDA..............................................................Section 1.3(b)7161Financial Statements.............................................Section 3.5(a)7162Fiscal Year......................................................Section 1.3(b)7163FY 2006..........................................................Section 1.3(b)7164FY 2006 Target...................................................Section 1.3(b)7165FY 2007..........................................................Section 1.3(b)7166FY 2007 Target...................................................Section 1.3(b)7167FY 2008..........................................................Section 1.3(b)7168FY 2008 Target...................................................Section 1.3(b)71697170Governmental Entity.................................................Section 2.371717172Hazardous Substances.........................................Section 3.20(a)(i)7173Holdback Amount.....................................................Section 1.27174Holdback Termination Date...........................................Section 6.17175HSR Act.............................................................Section 2.371767177Inbound License Agreements......................................Section 3.16(f)7178INC....................................................................Preamble7179INC Shares.......................................................Section 3.2(a)7180Indemnification Claim............................................Section 6.2(c)7181Indemnitee.......................................................Section 6.2(c)7182Indemnitor.......................................................Section 6.2(c)7183Insurance Policies.................................................Section 3.227184Intellectual Property...........................................Section 3.16(a)7185Intellectual Property Losses.................................Section 1.3(e)(vi)7186IRS.................................................................Section 3.971877188JAMS Streamlined Rules...........................................Section 9.6(a)71897190Licensee.........................................................Section 4.2(c)7191Liens...........................................................Section 3.25(a)7192Losses...........................................................Section 6.2(c)71937194Marks...........................................................Section 3.16(a)7195Material Adverse Change................................Section 3.7. Section 2.37196Material Adverse Effect................................Section 3.7. Section 2.37197Material Contracts..............................................Section 3.11(b)7198Member Agreement...................................................Section 5.127199Memorandum.......................................................Section 9.6(b)7200Mid-Year Report..................................................Section 4.2(d)72017202Non-Eligible Product.............................................Section 4.2(c)7203Notice of Objection..............................................Section 1.3(e)7204Notifying Party..................................................Section 9.6(b)72057206Open Source License.............................................Section 3.16(i)7207Outbound License Agreements.....................................Section 3.16(f)72087209Patents.........................................................Section 3.16(a)7210Permitted Lien...................................................Section 9.2(d)721172127213657214<PAGE>72157216Permitted Sale...................................................Section 4.2(a)7217Person...........................................................Section 9.2(e)7218PFO....................................................................Preamble7219PFO Shares.......................................................Section 3.2(b)7220PMA's............................................................Section 1.3(b)7221Post Closing Patent..........................................Section 1.3(e)(vi)7222Premere Approval.................................................Section 1.3(b)7223Premere Approval Notice..........................................Section 1.3(e)7224Premere Approval-Based Contingent Consideration..................Section 1.3(d)7225Premere First Target Period......................................Section 1.3(b)7226Premere Product..................................................Section 1.3(b)7227Premere Second Target Period.....................................Section 1.3(b)7228Premere Third Target Period......................................Section 1.3(b)7229Premere Trigger..................................................Section 4.2(e)7230Proxis Product...................................................Section 1.3(b)7231Proxis Trigger...................................................Section 4.2(e)72327233Real Estate.....................................................Section 3.25(b)7234Responding Party.................................................Section 9.6(b)7235Revenue..........................................................Section 1.3(b)7236Revenue Notice...................................................Section 1.3(e)7237Revenue-Based Contingent Consideration...........................Section 1.3(c)72387239Shares.................................................................Preamble7240SSA..............................................................Section 3.8(a)7241State Takeover Approvals............................................Section 2.37242Subsidiary.......................................................Section 9.2(f)72437244Target Periods...................................Section 1.3(b). Section 1.3(b)7245Tax Return..........................................................Section 3.97246Taxes...............................................................Section 3.97247Total Consideration..............................................Section 1.1(b)7248Trade Secrets...................................................Section 3.16(a)7249Transaction Documents............................................Section 6.2(c)72507251Velocimed Intellectual Property..................................Section 1.3(b)7252Venture Product..................................................Section 1.3(b)72537254Warrant Agreement..................................................Section 5.117255725672577258725972607261726272637264667265<PAGE>72667267IN WITNESS WHEREOF, Buyer, and the Company have caused this Agreement7268to be signed by their respective officers thereunto duly authorized all as of7269the date first written above.72707271ST. JUDE MEDICAL, INC.7272A MINNESOTA CORPORATION727372747275By:_____________________________7276Name:7277Title:7278727972807281728272837284VELOCIMED, LLC,7285A DELAWARE LIMITED LIABILITY COMPANY728672877288By:_____________________________7289Name:7290Title:729172927293729472957296729772987299730073017302730373047305730673077308730973107311[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]73127313</TEXT>7314</DOCUMENT>7315<DOCUMENT>7316<TYPE>EX-3.17317<SEQUENCE>37318<FILENAME>stjude051052_ex3-1.txt7319<TEXT>7320EXHIBIT 3.173217322ARTICLES OF INCORPORATION73237324OF73257326ST. JUDE MEDICAL, INC.732773287329ARTICLE I.73307331Name7332----73337334The name of the corporation shall be St. Jude Medical, Inc.733573367337ARTICLE II.73387339Business Purposes7340-----------------73417342The purposes for which this corporation is organized are as follows:73437344a. General business purposes.73457346b. To do everything necessary, proper, advisable or convenient7347for the accomplishment of the purposes hereinabove set forth,7348and to do all other things incidental thereto or connected7349therewith, which are not forbidden by the laws under which7350this corporation is organized, by other laws, or by these7351Articles of Incorporation.73527353c. To carry out the purposes hereinabove set forth in any state,7354territory, district or possession of the United States, or in7355any foreign country, to the extent that such purposes are not7356forbidden by law, to limit in any certificate for application7357to do business, the purposes or purpose which the corporation7358proposes to carry on therein to such extent as are not7359forbidden by law thereof.736073617362ARTICLE III.73637364Duration7365--------73667367The duration of the corporation shall be perpetual.7368736973707371737217373(2005 Restatement)7374<PAGE>73757376ARTICLE IV.73777378Registered Office7379-----------------73807381The location and post office address of the registered office of the7382corporation in the State of Minnesota is One Lillehei Plaza, St. Paul, Minnesota738355117.73847385ARTICLE V.73867387Powers of the Corporation7388-------------------------73897390This corporation shall have all the powers granted to private7391corporations organized for profit by said Minnesota Business Corporation Act,7392and in furtherance and not in limitation of the powers conferred by the laws of7393the State of Minnesota upon corporations organized for the foregoing purposes,7394the corporation shall have the power:73957396a. To acquire, hold, mortgage, pledge or dispose of the shares,7397bonds, securities or other evidences of indebtedness of the7398United States of America, or of any domestic or foreign7399corporation, and while the holder of such shares to exercise7400all the privileges of ownership, including the right to vote7401thereof, to the same extent as a natural person might or could7402do, by the president of this corporation or by proxy appointed7403by him, unless some other person, by resolution of the Board7404of Directors, shall be appointed to vote such shares.74057406b. To purchase or otherwise acquire on such terms and in such7407manner as the Bylaws of this corporation from time to time7408provide, and to own all shares of the capital stock of this7409corporation, and to reissue the same from time to time.74107411c. When and as authorized by the vote of the holders of not less7412than a majority of the shares entitled to vote, at a7413shareholders' meeting called for that purpose, or when7414authorized upon the written consent of the holders of a7415majority of such shares, to sell, lease, exchange or otherwise7416dispose of all, or substantially all, of its property and7417assets, including its goodwill, upon such terms and for such7418consideration which may be money, shares, bonds or other7419instruments for the payment of money or other property as the7420Board of Directors deems expedient or advisable.74217422d. To acquire, hold, lease, encumber, convey or otherwise dispose7423of, either alone or in conjunction with others, real and7424personal property within or without the state; and to take7425real and personal property by will or gift.74267427e. To acquire, hold, take over as a going concern and thereafter7428to carry on, mortgage, sell or otherwise dispose of, either7429alone or in conjunction with74307431743227433(2005 Restatement)7434<PAGE>74357436others, the rights, property and business of any person,7437entity, partnership, association or corporation heretofore or7438hereafter engaged in any business, the purpose of which is7439similar to the purposes set forth in Article II of these7440Articles of Incorporation.74417442f. To enter into any lawful arrangement for sharing profits,7443union of interests, reciprocal association or cooperative7444association with any corporation, association, partnership,7445individual or other legal entity, for the carrying on of any7446business, the purpose of which is similar to the purposes set7447forth in Article II of these Articles of Incorporation.74487449ARTICLE VI.74507451Mergers and Consolidation7452-------------------------74537454Any agreement for consolidation or merger with one or more foreign or7455domestic corporations may be authorized by vote of the holders of a majority of7456the shares entitled to vote.745774587459ARTICLE VII.74607461Capital Stock7462-------------74637464The authorized capital stock of this corporation shall be Five Hundred7465Million (500,000,000) shares of common stock of the par value of Ten Cents7466($.10) per share (the "Common Stock") and Twenty-Five Million (25,000,000)7467shares of preferred stock of the par value of One Dollar ($1.00) per share (the7468"Preferred Stock").74697470SECTION 1. General.74717472(a) No holder of capital stock in the corporation shall be7473entitled to any cumulative voting rights.74747475(b) No holder of capital stock of the corporation shall have7476any preferential, preemptive or other rights of subscription to any7477shares of any class of capital stock of the corporation allotted or7478sold or to be allotted or sold now or hereafter authorized, or to any7479obligations convertible into the capital stock of the corporation of7480any class, or any right of subscription to any part thereof.74817482SECTION 2. Common Stock. Subject to all of the rights of the Preferred7483Stock, and except as may be expressly provided with respect to the Preferred7484Stock herein, by law or by the Board of Directors pursuant to this Article VII:74857486748737488(2005 Restatement)7489<PAGE>74907491(a) The holders of the Common Stock shall be entitled to7492receive when and as declared by the Board of Directors, out of earnings7493or surplus legally available therefore, dividends, payable either in7494cash, in property, or in shares of the capital stock of the7495corporation.74967497(b) The Common Stock may be allotted for such consideration7498and as and when the Board of Directors shall determine, and, under and7499pursuant to the laws of the State of Minnesota, the Board of Directors7500shall have the power to fix or alter, from time to time, in respect to7501shares then unallotted, any or all of the following: the dividend rate,7502the redemption price, the liquidation price, the conversion rights and7503the sinking or purchase fund rights of shares of any class, or of any7504series of any class, or the number of shares constituting any series of7505any class. The Board of Directors shall also have the power to fix the7506terms, provisions and conditions of options to purchase or subscribe7507for shares of any class or classes, including the price and conversion7508basis thereof. The Board of Directors shall also have the power to7509issue shares of stock of the corporation or assets of other business7510enterprises, as it may from time to time deem expedient.75117512SECTION 3. Preferred Stock. The Preferred Stock may be issued from time7513to time by the Board of Directors as shares of one or more series. Subject to7514the provisions hereof and the limitations prescribed by law, the Board of7515Directors is expressly authorized by adopting resolutions providing for the7516issuance of shares of any particular series and, if and to the extent from time7517to time required by law, by filing with the Minnesota Secretary of State a7518statement with respect to the adoption of the resolutions pursuant to the7519Minnesota Business Corporation Act (or other law hereafter in effect relating to7520the same or substantially similar subject matter), to establish the number of7521shares to be included in each such series and to fix the designation and7522relative powers, preferences and rights and the qualifications and limitations7523or restrictions thereof relating to the shares of each such series. The7524authority of the Board of Directors with respect to each series shall include,7525but not be limited to, determination of the following:75267527(a) the distinctive serial designation of such series and the7528number of shares constituting such series, provided that the aggregate7529number of shares constituting all series of Preferred Stock shall not7530exceed Twenty-five Million (25,000,000);75317532(b) the annual dividend rate on shares of such series, if any,7533whether dividends shall be cumulative and, if so, from which date or7534dates;75357536(c) whether the shares of such series shall be redeemable and,7537if so, the terms and conditions of such redemption, including the date7538or dates upon and after which such shares shall be redeemable, and the7539amount per share payable in case of redemption, which amount may vary7540under different conditions and at different redemption dates;754175427543754447545(2005 Restatement)7546<PAGE>75477548(d) the obligation, if any, of the corporation to retire7549shares of such series pursuant to a sinking fund;75507551(e) whether shares of such series shall be convertible into,7552or exchangeable for, shares of stock of any other class or classes and,7553if so, the terms and conditions of such conversion or exchange,7554including the price or prices or the rate or rates of conversion or7555exchange and the terms of adjustment, if any;75567557(f) whether the shares of such series shall have voting7558rights, in addition to the voting rights provided by law, and, if so,7559the terms of such voting rights;75607561(g) the rights of the shares of such series in the event of7562voluntary or involuntary liquidation, dissolution or winding up of the7563corporation; and75647565(h) any other relative rights, powers, preferences,7566qualifications, limitations or restrictions thereof relating to such7567series.75687569The shares of Preferred Stock of any one series shall be identical with7570each other in all respects except as to the dates from and after which dividends7571thereon shall cumulate, if cumulative.75727573ARTICLE VIII.75747575Stated Capital7576--------------75777578The minimum amount of stated capital with which the corporation will7579begin business is $1,000.00.75807581ARTICLE IX.75827583Management and Additional Powers7584--------------------------------75857586Section 1. The management and conduct of the business and affairs of7587the corporation shall be vested in a Board of Directors which shall consist of7588such number of directors, not less than three, the exact number to be fixed from7589time to time solely by resolution of the Board of Directors, acting by not less7590than a majority of the directors then in office.75917592Section 2. The Board of Directors shall be divided into three classes,7593with the term of office of one class expiring each year. At the Annual Meeting7594of Shareholders in 1986, two directors of the first class shall be elected to7595hold office for a term expiring at the 1987 Annual Meeting, two directors of the7596second class shall be elected to hold office for a term expiring at the 19887597Annual Meeting, and one director of the third class shall be elected to hold7598office for a term expiring at the 1989 Annual Meeting. Commencing75997600760157602(2005 Restatement)7603<PAGE>76047605with the Annual Meeting of Shareholders in 1987, each class of directors whose7606term shall then expire shall be elected to hold office for a three-year term. In7607the case of any vacancy on the Board of Directors, including a vacancy created7608by an increase in the number of directors, the vacancy shall be filled by7609election of the Board of Directors with the director so elected to serve for the7610remainder of the term of the director being replaced or, in the case of an7611additional director, for the remainder of the term of the class to which the7612director has been assigned. All directors shall continue in office until the7613election and qualification of their respective successors in office. When the7614number of directors is changed, any newly created directorships or any decrease7615in directorships shall be so assigned among the classes by a majority of the7616directors then in office, though less than a quorum, as to make all classes as7617nearly equal in number as possible. No decrease in the number of directors shall7618have the effect of shortening the term of any incumbent director.76197620Section 3. Any director or directors may be removed from office at any7621time, but only for cause and only by the affirmative vote of at least 80% of the7622votes entitled to be cast by holders of all the outstanding shares of Voting7623Stock (as defined in Article XIII hereof), voting together as a single class.76247625Section 4. The Board of Directors shall have the authority to accept or7626reject subscriptions for capital stock made after incorporation and may grant7627options to purchase or subscribe for capital stock. The Board of Directors7628shall, from time to time, fix and determine the consideration for which the7629corporation shall issue and sell its capital stock, and also the dividends to be7630paid by the corporation upon the capital stock. The Board of Directors shall7631have authority to fix the terms and conditions of rights to convert any7632securities of this corporation into shares and to authorize the issuance of such7633conversion rights.76347635Section 5. The Board of Directors shall have the authority to issue7636bonds, debentures or other securities convertible into capital stock or other7637securities of any class, or bearer warrants or other evidences of optional7638rights to purchase and/or subscribe to capital stock or other securities of any7639class, upon such terms, in such manner, and under such conditions as may be7640fixed by resolution of the Board prior to the issue thereof.76417642Section 6. The Board of Directors shall have the authority to make and7643alter the Bylaws, subject to the power of the shareholders to change or repeal7644the Bylaws.76457646Section 7. A quorum for any meeting of shareholders to transact7647business of this corporation, except as otherwise specifically provided herein7648or by law, shall be the presence in person or by proxy of the holders of a7649majority of the shares of common stock of the corporation outstanding and of7650record on the record date set for such meeting.76517652Section 8. Notwithstanding any other provision of these Articles of7653Incorporation or of law which might otherwise permit a lesser vote or no vote,7654but in addition to any76557656765767658(2005 Restatement)7659<PAGE>76607661affirmative vote of the holders of any particular class of Voting Stock required7662by law or these Articles of Incorporation, the affirmative vote of at least 80%7663of the votes entitled to be cast by holders of all the outstanding shares of7664Voting Stock (as defined in Article XIII hereof), voting together as a single7665class, shall be required to alter, amend or repeal this Article IX.76667667ARTICLE X.76687669Directors7670---------76717672The first Board of Directors shall be comprised of one person whose7673name and address are as follows:76747675Manuel A. Villafana76762220 Innsbruck Parkway7677Columbia Heights, Minnesota 5542176787679ARTICLE XI.76807681Incorporators7682-------------76837684The name and address of the incorporator is as follows:76857686Thomas H. Garrett III76874200 IDS Center768880 South Eighth Street7689Minneapolis, Minnesota 5540276907691ARTICLE XII.76927693Amendment7694---------76957696Any provisions contained in these Articles of Incorporation may be7697amended solely by the affirmative vote of the holder of a majority of the stock7698entitled to vote.7699770077017702770377047705770677707(2005 Restatement)7708<PAGE>77097710ARTICLE XIII.77117712Fair Price Provisions7713---------------------77147715Section 1. In addition to all other requirements imposed by law or7716these Articles of Incorporation (including Article VI hereof), and except as7717otherwise expressly provided in Section 2 of this Article XIII, a Business7718Combination (as hereinafter defined) shall require the affirmative vote of not7719less than seventy-five percent (75%) of the votes entitled to be cast by the7720holders of all then outstanding shares of Voting Stock (as hereinafter defined),7721voting together as a single class. Such affirmative vote shall be required7722notwithstanding the fact that no vote may be required, or that a lesser7723percentage or separate class vote may be specified, by law or by any other7724provision of these Articles of Incorporation or in any agreement with any7725national securities exchange or otherwise.77267727Section 2. The provisions of Section 1 of this Article XIII shall not7728be applicable to any particular Business Combination, and such Business7729Combination shall require only such affirmative vote, if any, as is required by7730law or by any other provision of these Articles of Incorporation or in any7731agreement with any national securities exchange or otherwise, if the conditions7732specified in either of the following Paragraphs 1 or 2 are met:773377341. The Business Combination shall have been approved by a7735majority of the Continuing Directors (as hereinafter defined).773677372. All of the following conditions shall have been met:77387739a. The aggregate amount of cash and the Fair Market7740Value (as hereinafter defined) as of the date of the7741consummation of the Business Combination of consideration7742other than cash to be received per share by holders of Common7743Stock in such Business Combination shall be at least equal to7744the higher amount determined under clauses (i) and (ii) below:77457746(i) (if applicable) the highest per share7747price (including any brokerage commissions, transfer7748taxes and soliciting dealers' fees) paid by or on7749behalf of the Interested Shareholder (as hereinafter7750defined) for any share of common stock in connection7751with the acquisition by the Interested Shareholder of7752beneficial ownership of shares of common stock (a)7753within the two-year period immediately prior to the7754date of the first public announcement of the proposed7755Business Combination (the "Announcement Date") or (b)7756in the transaction in which it became an Interested7757Shareholder, whichever is higher; and77587759(ii) the Fair Market Value per share of7760common stock on the Announcement Date or on the date7761on which the Interested Shareholder became an7762Interested Shareholder (such latter date77637764776587766(2005 Restatement)7767<PAGE>77687769being referred to herein as the "Determination7770Date"), whichever is higher.77717772b. The aggregate amount of cash and the Fair Market7773Value as of the date of the consummation of the Business7774Combination of consideration other than cash to be received7775per share by holders of shares of any class or series of7776outstanding capital stock (as hereinafter defined), other than7777common stock, shall be at least equal to the highest amount7778determined under clauses (i), (ii) and (iii) below:77797780(i) (if applicable) the highest per share7781price (including any brokerage commissions, transfer7782taxes and soliciting dealers' fees) paid by or on7783behalf of the Interested Shareholder for any share of7784such class or series of Capital Stock in connection7785with the acquisition by the Interested Shareholder of7786beneficial ownership of shares of such class or7787series of Capital Stock (a) within the two-year7788period immediately prior to the Announcement Date or7789(b) in the transaction in which it became an7790Interested Shareholder, whichever is higher;77917792(ii) the Fair Market Value per share of such7793class or series of Capital Stock on the Announcement7794Date or on the Determination Date, whichever is7795higher; and77967797(iii) (if applicable) the highest7798preferential amount per share to which the holders of7799shares of such class or series of Capital Stock would7800be entitled in the event of any voluntary or7801involuntary liquidation, dissolution or winding up of7802the affairs of the corporation, regardless of whether7803the Business Combination to be consummated7804constitutes such an event.78057806The provisions of this Paragraph 2.b shall7807be required to be met with respect to every7808class or series of outstanding Capital7809Stock, whether or not the Interested7810Shareholder has previously acquired7811beneficial ownership of any shares of a7812particular class or series of Capital Stock.78137814c. The consideration to be received by holders of a7815particular class or series of outstanding Capital Stock shall7816be in cash or in the same form as previously has been paid by7817or on behalf of the Interested Shareholder in connection with7818its direct or indirect acquisition of beneficial ownership of7819shares of such class or series of Capital Stock. If the7820consideration so paid for shares of any class or series of7821Capital Stock varied as to form, the form of consideration for7822such class or series of Capital78237824782597826(2005 Restatement)7827<PAGE>78287829Stock shall be either cash or the form used to acquire7830beneficial ownership of the largest number of shares of such7831class or series of Capital Stock previously acquired by the7832Interested Shareholder. The price determined in accordance7833with Paragraphs 2.a and 2.b of Section 2 of this Article XIII7834shall be subject to appropriate adjustment in the event of any7835stock dividend, stock split, combination of shares or similar7836event.78377838d. After such Interested Shareholder has become an7839Interested Shareholder and prior to the consummation of such7840Business Combination: (i) there shall have been no failure to7841declare and pay at the regular date therefore any full7842quarterly dividends (whether or not cumulative) payable in7843accordance with the terms of any outstanding Capital Stock7844having a preference over the common stock as to dividends, or7845upon liquidation, except as approved by a majority of the7846Continuing Directors; (ii) there shall have been no reduction7847in the annual rate of dividends paid on the common stock7848(except as necessary to reflect any stock dividend, stock7849split, combination of shares or similar event), except as7850approved by a majority of the Continuing Directors; (iii)7851there shall have been an increase in the annual rate of7852dividends paid on the common stock as necessary to reflect any7853reclassification (including any reverse stock split),7854recapitalization, reorganization or any similar transaction7855that has the effect of reducing the number of outstanding7856shares of common stock, unless the failure to increase such7857annual rate is approved by a majority of the Continuing7858Directors; and (iv) except as approved by a majority of the7859Continuing Directors, such Interested Shareholder shall not7860have become the beneficial owner of any additional shares of7861Capital Stock except as part of the transaction that results7862in such Interested Shareholder becoming an Interested7863Shareholder and except in the transaction that, after giving7864effect thereto, would not result in any increase in the7865Interested Shareholder's percentage beneficial ownership of7866any class or series of Capital Stock.78677868e. After such Interested Shareholder has become an7869Interested Shareholder, such Interested Shareholder shall not7870have received the benefit, directly or indirectly (except7871proportionately as a shareholder of the corporation), of any7872loans, advances, guarantees, pledges or other financial7873assistance or any tax credits or other tax advantages provided7874by the corporation, whether in anticipation of or in7875connection with such Business Combination or otherwise.78767877f. A proxy or information statement describing the7878proposed Business Combination and complying with the7879requirements of the Securities Exchange Act of 1934 (the7880"Act") and the rules and regulations thereunder (or any7881subsequent provisions replacing such Act, rules or7882regulations) shall be mailed to all shareholders of the7883corporation at least 30 days prior to the consummation of such7884Business Combination (whether of not such proxy or information7885statement is required to be mailed pursuant to the Act or7886subsequent provisions). The proxy or788778887889107890(2005 Restatement)7891<PAGE>78927893information statement shall contain on the first page thereof,7894in a prominent place, any statement as to the advisability (or7895inadvisability) of the Business Combination that a majority of7896the Continuing Directors may choose to make and, if deemed7897advisable by a majority of the Continuing Directors as to the7898fairness (or lack of fairness) of the terms of the Business7899Combination from a financial point of view to the holders of7900the outstanding shares of Capital Stock other than the7901Interested Shareholder and its Affiliates (as hereinafter7902defined) or Associates (as hereinafter defined).79037904g. Such Interested Shareholder shall not have made or7905caused to be made any major change in the corporation's7906business or equity capital structure without the approval of a7907majority of the Continuing Directors.79087909Section 3. For the purpose of this Article XIII:791079111. The term "Business Combination" shall mean:79127913a. any merger, consolidation or statutory exchange of7914shares of the corporation or any Subsidiary (as hereinafter7915defined) with (i) any Interested Shareholder or (ii) any other7916corporation (whether or not itself an Interested Shareholder)7917which is or after such merger, consolidation or statutory7918share exchange would be an Affiliate or Associate of an7919Interested Shareholder; provided, however, that the foregoing7920shall not include the merger of a wholly owned Subsidiary of7921the corporation into the corporation or the merger of two or7922more wholly owned Subsidiaries of the corporation; or79237924b. any sale, lease, exchange, mortgage, pledge,7925transfer or other disposition (in one transaction or a series7926of transactions) to or with an Interested Shareholder or any7927Affiliate or Associate of any Interested Shareholder of any7928assets of the corporation or any Subsidiary equal to or7929greater than ten percent (10%) of the book value of the7930consolidated assets of the corporation; or79317932c. any sale, lease, exchange, mortgage, pledge,7933transfer or other disposition (in one transaction or a series7934of transactions) to or with the corporation or any Subsidiary7935of any assets of any Interested Shareholder or any Affiliate7936or Associate of any Interested Shareholder equal to or greater7937than ten percent (10%) of the book value of the consolidated7938assets of the corporation; or79397940d. the issuance or transfer by the corporation or any7941Subsidiary (in one transaction or a series of transactions) to7942any Interested Shareholder or any Affiliate or Associate of7943any Interested Shareholder of794479457946117947(2005 Restatement)7948<PAGE>79497950any securities of the corporation (except pursuant to stock7951dividends, stock splits, or similar transactions which would7952not have the effect, directly or indirectly, of increasing the7953proportionate share of any class or series of Capital Stock,7954or any securities convertible into Capital Stock or into7955equity securities of any Subsidiary, that is beneficially7956owned by any Interested Shareholder, directly or indirectly,7957of increasing the proportionate share of any class or series7958of Capital Stock, or any securities convertible into Capital7959Stock or into equity securities of any Subsidiary, that is7960beneficially owned by any Interested Shareholder or any7961Affiliate or Associate of any Interested Shareholder) or of7962any securities of a Subsidiary (except pursuant to a pro rata7963distribution to all holders of common stock of the7964corporation); or79657966e. the adoption of any plan or proposal for the7967liquidation or dissolution of the corporation proposed by or7968on behalf of an Interested Shareholder or any Affiliate or7969Associate of any Interested Shareholder; or79707971f. any transaction (whether or not with or otherwise7972involving and Interested Shareholder) that has the effect,7973directly or indirectly, of increasing the proportionate share7974of any class or series of Capital Stock, or any securities7975convertible into Capital Stock or into equity securities of7976any Subsidiary, that is beneficially owned by any Interested7977Shareholder or any Affiliate or Associate of any Interested7978Shareholder, including, without limitation, any7979reclassification of securities (including any reverse stock7980split), or recapitalization of the corporation, or any merger,7981consolidation or statutory exchange of shares of the7982corporation with any of its Subsidiaries; or79837984g. any agreement, contract or other agreement or7985understanding providing for any one or more of the actions7986specified in the foregoing clauses (a) to (f).798779882. The term "Capital Stock" shall mean all capital stock of7989the corporation authorized to be issued from time to time under Article7990VII of these Articles of Incorporation. The term "Voting Stock" shall7991mean all Capital Stock of the corporation entitled to vote generally in7992the election of directors of the corporation.799379943. The term "person" shall mean any individual, firm,7995corporation or other entity and shall include any group comprised of7996any person and any other person or persons with whom such person or any7997Affiliate or Associate of such person has any agreement, arrangement or7998understanding, directly or indirectly, for the purpose of acquiring,7999holding, voting, or disposing of Capital Stock.80008001128002(2005 Restatement)8003<PAGE>800480054. The term "Interested Shareholder" shall mean any person8006(other than the corporation or any Subsidiary and other than any8007profit-sharing, employee stock ownership or other employee benefit plan8008of the corporation or any Subsidiary or any trustee of or fiduciary8009with respect to any such plan when acting in such capacity) who (a) is8010the beneficial owner of Voting Stock representing ten percent (10%) or8011more of the votes entitled to be cast by the holders of all then8012outstanding shares of Voting Stock; or (b) is an Affiliate or Associate8013of the corporation and at any time within the two-year period8014immediately prior to the date in question was the beneficial owner of8015Voting Stock representing ten percent (10%) or more of the votes8016entitled to be cast by the holders of all then outstanding shares of8017Voting Stock; or (c) is an assignee of or has otherwise succeeded to8018any shares of Voting Stock which were at any time within the two-year8019period immediately prior to the date in question beneficially owned by8020an Interested Shareholder, if such assignment or succession shall have8021occurred in the course of a transaction or series of transactions not8022involving a public offering within the meaning of the Securities Act of80231933.802480255. A person shall be a "beneficial owner" of any Capital Stock8026(a) which such person or any of its Affiliates or Associates8027beneficially owns, directly or indirectly; (b) which such person or any8028of its Affiliates or Associates has, directly or indirectly, (i) the8029right to acquire (whether such right is exercisable immediately or8030subject only to the passage of time), pursuant to any agreement,8031arrangement or understanding or upon the exercise of conversion rights,8032exchange rights, warrants or options, or otherwise, or (ii) the right8033to vote pursuant to any agreement, arrangement or understanding, or8034(iii) the right to dispose or direct the disposition of, pursuant to8035any agreement, arrangement or understanding; or (c) which are8036beneficially owned, directly or indirectly, by any other person with8037which such person or any of its Affiliates or Associates has any8038agreement, arrangement or understanding for the purpose of acquiring,8039holding, voting or disposing of any shares of Capital Stock. For the8040purposes of determining whether a person is an Interested Shareholder8041pursuant to Paragraph 4 of this Section 3, the number of shares of8042Capital Stock deemed to be outstanding shall include shares deemed8043beneficially owned by such person through application of this Paragraph80445, but shall not include any other shares of Capital Stock that may be8045issuable pursuant to any agreement, arrangement or understanding, or8046upon exercise of conversion rights, exchange rights, warrants or8047options, or otherwise.804880496. The term "Affiliate," used to indicate a relationship with8050a specified person, shall mean a person that directly, or indirectly8051through one or more intermediaries, controls, or is controlled by, or8052is under common control with, such specified person. The term8053"Associate," used to indicate a relationship with a specified person,8054shall mean (a) any person (other than the corporation or a Subsidiary)8055of which such specified person is an officer or partner or is, directly8056or indirectly, the beneficial owner of ten percent (10%) or more of any8057class of equity securities, (b) any trust or other estate in which such8058specified person has a805980608061138062<PAGE>80638064substantial beneficial interest or as to which such specified person8065serves as a trustee or in a similar fiduciary capacity, (c) any8066relative or spouse of such specified person or any relative of such8067spouse, who has the same home as such specified person or who is a8068director or officer of the corporation or any Subsidiary, and (d) any8069person who is a director or officer of such specified person or any of8070its parents or subsidiaries (other than the corporation or a8071Subsidiary).807280737. The term "Subsidiary" shall mean any corporation of which a8074majority of any class of equity security is beneficially owned,8075directly or indirectly, by the corporation; provided, however, that for8076the purposes of Paragraph 4 of this Section 3, the term "Subsidiary"8077shall mean only a corporation of which a majority of each class of8078equity security is beneficially owned, directly or indirectly, by the8079corporation.808080818. The term "Continuing Director" shall mean any member of the8082Board of Directors of the corporation, while such person is a member of8083the Board of Directors, who was a member of the Board of Directors8084prior to the time that the Interested Shareholder involved in the8085Business Combination in question became an Interested Shareholder, and8086any member of the Board of Directors, while such person is a member of8087the Board of Directors, whose election, or nomination for election by8088the corporation's shareholders, was approved by a vote of a majority of8089the Continuing Directors; provided, however, that in no event shall an8090Interested Shareholder involved in the Business Combination in question8091or any Affiliate, Associate or representative of such Interested8092Shareholder, be deemed to be a Continuing Director.809380949. The term "Fair Market Value" shall mean (a) in the case of8095cash, the amount of such cash; (b) in the case of stock, on the8096principal United States securities exchange registered under the Act on8097which such stock is listed, or, if such stock is not listed on any such8098exchange, the highest closing sale or closing bid quotation (whichever8099is applicable) with respect to a share of such stock during the 30-day8100period immediately preceding the date in question of a share of such8101stock on the National Association of Securities Dealers, Inc. Automated8102Quotations System or any similar system then in use, or if no such8103quotations are available, the fair market value on the date in question8104of a share of such stock as determined by a majority of the Continuing8105Directors in good faith; and (c) in the case of property other than8106cash or stock, the fair market value of such property on the date in8107question as determined in good faith by a majority of the Continuing8108Directors.8109811010. In the event of any Business Combination in which the8111corporation survives, the phrase "consideration other than cash to be8112received" as used in Paragraphs 2.a and 2.b of Section 2 of this8113Article XIII shall include the shares of common stock and/or the shares8114of any other class or series of Capital Stock retained by the holders8115of such shares.811681178118148119(2005 Restatement)8120<PAGE>81218122Section 4. The Continuing Directors by majority vote shall have the8123power to determine for the purposes of this Article XIII, on the basis of8124information known to them after reasonable inquiry, (a) whether a person is an8125Interested Shareholder, (b) the number of shares of Capital Stock (including8126Voting Stock) or other securities beneficially owned by any person, (c) whether8127a person is an Affiliate or Associate of another, (d) whether the assets that8128are the subject of any Business Combination equal or exceed ten percent (10%) of8129the book value of the consolidated assets of the corporation, (e) whether a8130proposed plan of dissolution or liquidation is proposed by or on behalf of an8131Interested Shareholder or any Affiliate or Associate of any Interested8132Shareholder, (f) whether any transaction has the effect, directly or indirectly,8133of increasing the proportionate share of any class or series of Capital Stock,8134or any securities convertible into Capital Stock or into equity securities of8135any Subsidiary, that is beneficially owned by an Interested Shareholder or any8136Affiliate or Associate of an Interested Shareholder, (g) whether any Business8137Combination satisfies the conditions set forth in Paragraph 2 of Section 2 of8138this Article XIII, and (h) such other matters with respect to which a8139determination is required under this Article XIII. Any such determination made8140in good faith shall be binding and conclusive on all parties.81418142Section 5. Nothing contained in this Article XIII shall be construed to8143relieve any Interested Shareholder from any fiduciary obligation imposed by law.81448145Section 6. The fact that any Business Combination complies with the8146provisions of Section 2 of this Article XIII shall not be construed to impose8147any fiduciary duty, obligation or responsibility on the Board of Directors, or8148any member thereof, or the Continuing Directors, or any of them, to approve such8149Business Combination or recommend its adoption or approval to the shareholders8150of the corporation, nor shall such compliance limit, prohibit or otherwise8151restrict in any manner the Board of Directors, or any member thereof, or the8152Continuing Directors, or any of them, with respect to evaluations of or actions8153and responses taken with respect to such Business Combination. The Board of8154Directors of the corporation, when evaluating any actions or transactions8155described in Section 2 of this Article XIII, shall, in connection with the8156exercise of its judgment in determining what is in the best interests of the8157corporation and its shareholders, give due consideration to all relevant factors8158including without limitation the social and economic effects on the employees,8159customers, suppliers and other constituents of the corporation and its8160subsidiaries and on the communities in which the corporation and its8161subsidiaries operate or are located.81628163Section 7. Notwithstanding any other provisions of these Articles of8164Incorporation (and notwithstanding the fact that a lesser percentage or separate8165class vote may be specified by law or these Articles of Incorporation), the8166affirmative vote of the holders of not less than 80% of the votes entitled to be8167cast by the holders of all then outstanding shares of Voting Stock, voting8168together as a single class, shall be required to amend or repeal, or adopt any8169provisions inconsistent with this Article XIII.817081718172158173(2005 Restatement)8174<PAGE>81758176ARTICLE XIV.81778178Director Liability8179------------------81808181No director of this Corporation shall be personally liable to the8182Corporation or its shareholders for monetary damages for breach of fiduciary8183duty as a director, except for liability (i) for any breach of the director's8184duty of loyalty to the Corporation or its shareholders; (ii) for acts or8185omissions not in good faith or that involve intentional misconduct or a knowing8186violation of law; (iii) under Sections 302A.559 or 80A.23 of the Minnesota8187Statutes; (iv) for any transaction from which the director derived any improper8188personal benefit; or (v) for any act or omission occurring prior to the date8189when this provision becomes effective.81908191The provisions of this Article shall not be deemed to limit or preclude8192indemnification of a director by the Corporation for any liability of a director8193which has not been eliminated by the provisions of this Article.81948195If the Minnesota Statutes hereafter are amended to authorize the8196further elimination or limitation of the liability of directors, then the8197liability of a director of the Corporation shall be eliminated or limited to the8198fullest extent permitted by the amended Minnesota Statutes.8199820082018202820382048205820682078208820982108211821282138214821582168217821882198220822182228223822482258226822782288229823082318232168233(2005 Restatement)823482358236</TEXT>8237</DOCUMENT>8238<DOCUMENT>8239<TYPE>EX-10.148240<SEQUENCE>48241<FILENAME>stjude051052_ex10-14.txt8242<TEXT>8243EXHIBIT 10.148244824582468247ST. JUDE MEDICAL, INC.8248NON-QUALIFIED STOCK OPTION AWARD8249(2002 STOCK PLAN)82508251[NAME AND ADDRESS OF OPTIONEE]82528253[SOCIAL SECURITY NUMBER OF OPTIONEE]8254825582568257THIS CERTIFIES that St. Jude Medical, Inc. (the "Company") has granted8258you an option (the "Option") to purchase shares (the "Option Shares") of common8259stock, par value $.10 per share, of the Company (the "Common Stock") pursuant to8260the St. Jude Medical, Inc. 2002 Stock Plan, as amended (the "Plan"), as follows:82618262Grant Type: Non-Qualified Stock Option82638264Grant Date:82658266Exercise Price Per Share:82678268Total Number of Option Shares:82698270Expiration Date:82718272The Option is granted under and governed by the following terms and8273conditions and the terms and conditions contained in the Plan. A copy of the8274Plan is available upon request. Any capitalized terms not defined in this Award8275will have the meaning set forth in the Plan.82768277ST. JUDE MEDICAL, INC.827882798280By: ______________________________8281Name:8282Title:82838284<PAGE>828582868287TERMS AND CONDITIONS OF NON-QUALIFIED STOCK OPTION AWARD8288828982901. Vesting and Term of Option.82918292(a) The Option will become exercisable as to 25% of the Option Shares8293on each anniversary of the Grant Date (stated on the first page of this Award),8294commencing with the first anniversary of the Grant Date, unless the Option8295terminates or the vesting accelerates as provided in this Award. Once the Option8296has become exercisable for all or a portion of the Option Shares, it will remain8297exercisable for all or such portion of the Option Shares, as the case may be,8298until the Option expires or is terminated as provided in this Award. The Option8299will expire on the Expiration Date (stated on the first page of this Award),8300unless it is terminated prior to that time in accordance with the terms and8301conditions of this Award.83028303(b) Notwithstanding the vesting provision contained in Section 1(a)8304above, but subject to the other terms and conditions set forth herein, from and8305after a Change of Control (as hereinafter defined) the Option will become8306immediately exercisable in full. As used herein, "Change of Control" shall mean8307any of the following events:83088309(i) the acquisition by any person, entity or "group," within8310the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange8311Act of 1934, as amended (the "Exchange Act"), other than the Company or8312any of its Subsidiaries, or any employee benefit plan of the Company8313and/or one or more of its Subsidiaries, of beneficial ownership (within8314the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or8315more of either the then outstanding shares of Common Stock or the8316combined voting power of the Company's then outstanding voting8317securities in a transaction or series of transactions not approved in8318advance by a vote of at least three-quarters of the Continuing8319Directors (as hereinafter defined); or83208321(ii) individuals who, as of the Grant Date, constitute the8322Board of Directors of the Company (generally the "Directors" and as of8323the Grant Date the "Continuing Directors") cease for any reason to8324constitute at least a majority thereof, provided that any person8325becoming a Director subsequent to the Grant Date whose nomination for8326election was approved in advance by a vote of at least three-quarters8327of the Continuing Directors (other than a nomination of an individual8328whose initial assumption of office is in connection with an actual or8329threatened solicitation with respect to the election or removal of the8330Directors of the Company, as such terms are used in Rule 14a-11 of8331Regulation 14A under the Exchange Act) shall be deemed to be a8332Continuing Director; or83338334(iii) the approval by the shareholders of the Company of a8335reorganization, merger, consolidation, liquidation or dissolution of8336the Company or of the sale (in one transaction or a series of related8337transactions) of all or substantially all of the assets of the Company8338other than a reorganization, merger, consolidation, liquidation,8339dissolution or sale approved in advance by a vote of at least8340three-quarters of the Continuing Directors; or8341834228343<PAGE>834483458346(iv) the first purchase under any tender offer or exchange8347offer (other than an offer by the Company or any of its Subsidiaries)8348pursuant to which shares of Common Stock are purchased; or83498350(v) at least a majority of the Continuing Directors determines8351in their sole discretion that there has been a change in control of the8352Company.835383543. Effect of Termination of Employment.83558356(a) If your employment is terminated by reason of your death, the8357Option may be exercised at any time within 12 months after the date of your8358death, to the extent that the Option was exercisable by you on the date of8359death, by your personal representatives or administrators or by any person or8360persons to whom the Option has been transferred by will or the applicable laws8361of descent and distribution, subject to the condition that the Option will not8362be exercisable after the Expiration Date of the Option.83638364(b) If your employment is terminated by reason of Disability, you may8365exercise the Option at any time within 12 months after such termination of8366employment, to the extent that the Option was exercisable by you on the date of8367such termination, subject to the condition that the Option will not be8368exercisable after the Expiration Date of the Option.83698370(c) If your employment is terminated by reason of Retirement, you may8371exercise the Option at any time within 36 months after such termination of8372employment, to the extent that the Option was exercisable by you on the date of8373such termination, subject to the condition that the Option will not be8374exercisable after the Expiration Date of the Option.83758376(d) If your employment is terminated for Cause, the Option will8377terminate immediately upon termination of employment and will not be exercisable8378thereafter.83798380(e) If your employment terminates for any reason other than your8381death, Disability, Retirement or for Cause, you may exercise the Option at any8382time within 90 days after the date of such termination of employment, to the8383extent that the Option was exercisable by you on the date of such termination,8384subject to the condition that the Option will not be exercisable after the8385Expiration Date of the Option. However, if upon termination of your employment8386you become a consultant to the Company pursuant to a written consulting8387agreement, then you may continue to exercise the Option at any time until 908388days after the date of termination of such consulting agreement to the extent8389the Option was exercisable by you on the date of your termination of employment8390and subject to the condition that the Option may not be exercised after the8391termination of the Option.839283934. Method of Exercising Option.83948395(a) Subject to the terms and conditions of this Award, the Option may8396be exercised by written notice to the Company, to the attention of the Stock8397Option Administrator at Corporate Headquarters. Such notice must state the8398election to exercise the Option, the number of Option Shares as to which the8399Option is being exercised and the manner of payment, and must be signed by the8400person or persons so exercising the Option. The notice must be accompanied by8401payment in full of the Exercise Price (stated on the first page of this Award)8402for all Option Shares84038404384058406<PAGE>840784088409designated in the notice. To the extent that the Option is exercised by a8410person or persons other than you, the notice of exercise also must be8411accompanied by appropriate proof of the right of such person or persons to8412exercise the Option.84138414(b) Payment of the Exercise Price must be made to the Company through8415one or a combination of the following methods:84168417(i) delivery of a check payable to the Company or cash, in8418United States currency;84198420(ii) delivery of shares of Common Stock acquired by you (or8421the other person(s) exercising the Option) more than six months prior8422to the date of exercise having a Fair Market Value on the date of8423exercise equal to the Exercise Price. You (or such other person(s))8424must duly endorse all certificates delivered to the Company in blank8425and must represent and warrant in writing that you are the owner of the8426shares so delivered, free and clear of all liens, encumbrances,8427security interests and restrictions; or84288429(iii) delivery of a combination of cash or a check and Common8430Stock acquired by you (or the other person(s) exercising the Option)8431more than six months prior to the date of exercise having an aggregate8432Fair Market Value on the date of exercise equal to the Exercise Price.843384345. Income Tax Withholding.84358436In order to provide the Company with the opportunity to claim the8437benefit of any income tax deduction that may be available to it upon the8438exercise of the Option, and in order to comply with all applicable federal or8439state income tax laws or regulations, the Company may take such action as it8440deems appropriate to ensure that all applicable minimum federal or state income,8441withholding, social, payroll or other taxes, which are your sole and absolute8442responsibility, are withheld or collected from you or the other person(s)8443exercising the Option. You or such other person(s) exercising the Option may, at8444your election (the "Tax Election"), satisfy the applicable minimum tax8445withholding obligations by (a) electing to have the Company withhold a portion8446of the Option Shares otherwise to be delivered upon exercise of the Option8447having a Fair Market Value equal to the amount of such taxes or (b) delivering8448to the Company shares of Common Stock having a Fair Market Value equal to the8449amount of such taxes. The Tax Election must be made on or before the date that8450the amount of tax to be withheld is determined.845184526. Restriction on Transfer or Sale of Option Shares.84538454(a) Each time that all or a portion of the Option is exercised in8455accordance with the terms and conditions of this Award, 50% of the Option Shares8456(after deducting any Option Shares used or sold by you to pay the exercise price8457or to satisfy the applicable minimum tax withholding obligations in connection8458with such exercise, and rounded down to the nearest whole share) received by you8459from such exercise shall be held by you for one year from the date of such8460exercise, provided, however, the Committee, in its sole discretion, may waive8461such restriction on transfer or sale on all or a portion of such Option Shares8462prior to the expiration of such one-year period. Nothing in this Section 6(a)8463shall prevent you from accepting a payment of cash or other property or8464securities in consideration for the Option or the Option Shares in connection8465with a Change of Control, provided that the restriction on transfer or sale set8466forth in this Section 6(a) shall continue to apply to any securities received by8467you in consideration for the Option or the Option Shares in84688469484708471<PAGE>847284738474connection with any such Change of Control to the same extent as if those8475securities had been received upon the exercise of the Option, unless your8476employment is terminated and the restriction ceases to apply as provided in8477Section 6(b).84788479(b) Notwithstanding Section 6(a), if your employment is terminated8480pursuant to Section 3(a), (b) or (c) above, the restriction on transfer or sale8481pursuant to Section 6(a) will automatically cease and, so long as all federal8482and state securities laws are adhered to, any Option Shares which you (or in the8483case of your death, your personal representatives or administrators or any8484person or persons to whom the Option or the Option Shares have been transferred8485by will or the applicable laws of descent and distribution) receive or have8486received pursuant to the exercise of the Option may be immediately transferred8487or sold.848884897. Adjustments.84908491If the Committee determines that any merger, reorganization,8492consolidation, recapitalization, stock dividend, stock split, reverse stock8493split, other change in corporate structure affecting the Common Stock, spin-off,8494split-up or other distribution of assets to shareholders, or other similar8495corporate transaction or event affects the shares of Common Stock such that an8496adjustment is determined by the Committee to be appropriate in order to prevent8497dilution or enlargement of the benefits or potential benefits intended to be8498made available under this Award, then an appropriate adjustment automatically8499will be made in the number and kind of Option Shares with a corresponding8500adjustment in the Exercise Price; provided that the number of Option Shares8501always will be a whole number.850285038. Securities Matters.85048505No Option Shares will be issued hereunder prior to such time as counsel8506to the Company has determined that the issuance of the Option Shares will not8507violate any federal or state securities or other laws, rules or regulations. The8508Company will not be required to deliver any Option Shares until the requirements8509of any federal or state securities or other laws, rules or regulations8510(including the rules of any securities exchange) as may be determined by the8511Company to be applicable are satisfied.851285139. General Provisions.85148515(a) Interpretations. This Award is subject in all respects to the8516terms of the Plan. In the event that any provision of this Award is inconsistent8517with the terms of the Plan, the terms of the Plan will govern. Any question of8518administration or interpretation arising under this Award will be determined by8519the Committee, and such determination will be final, conclusive and binding upon8520all parties in interest.85218522(b) No Rights as a Shareholder. Neither you nor your legal8523representatives will have any of the rights and privileges of a shareholder of8524the Company with respect to the Option Shares unless and until certificates for8525such Option Shares have been issued upon exercise of the Option.85268527585288529<PAGE>853085318532(c) No Right to Employment. Nothing in this Agreement or the Plan8533will be construed as giving you the right to be retained as an employee of the8534Company. In addition, the Company may at any time dismiss you from employment,8535free from any liability or any claim under this Award.85368537(d) Option Not Transferable. The Option may not be transferred,8538pledged, alienated, attached or otherwise encumbered, and any purported8539transfer, pledge, alienation, attachment or encumbrance of the Option will be8540void and unenforceable against the Company, except that the Option may be8541transferred (i) by will or by the laws of descent and distribution or (ii) by8542gift, without consideration, under a written instrument that is approved in8543advance by the Committee, to a member of your family, as defined in Section 2678544of the Internal Revenue Code of 1986, as amended, or to a trust or similar8545entity whose sole beneficiaries are you and/or members of your family (such8546family member or other entity, a "Permitted Transferee"), provided that such8547transfer and the exercise of the Option by such Permitted Transferee do not8548violate any federal or state securities laws. During your lifetime the Option8549will be exercisable only by you or such Permitted Transferee.85508551(e) Reservation of Shares. The Company will at all times during the8552term of the Option reserve and keep available such number of shares of Common8553Stock as will be sufficient to satisfy the requirements of this Award.85548555(f) Headings. Headings are given to the sections and subsections of8556this Award solely as a convenience to facilitate reference. Such headings will8557not be deemed in any way material or relevant to the construction or8558interpretation of this Award or any provision hereof.85598560(g) Governing Law. The internal law, and not the law of conflicts, of8561the State of Minnesota will govern all questions concerning the validity,8562construction and effect of this Award.8563856468565</TEXT>8566</DOCUMENT>8567<DOCUMENT>8568<TYPE>EX-138569<SEQUENCE>58570<FILENAME>stjude051052_ex13.txt8571<TEXT>85728573MANAGEMENT'S DISCUSSION AND ANALYSIS OF EXHIBIT 138574FINANCIAL CONDITION AND RESULTS OF OPERATIONS857585768577OVERVIEW85788579Our business is focused on the development, manufacturing and distribution of8580cardiovascular medical devices for the global cardiac rhythm management (CRM),8581cardiac surgery (CS) and cardiology and vascular access (C/VA) therapy areas.8582Our principal products in each of these therapy areas are as follows:85838584CRM8585o bradycardia pacemaker systems (pacemakers),8586o tachycardia implantable cardioverter defibrillator systems (ICDs), and8587o electrophysiology (EP) catheters85888589CS8590o mechanical and tissue heart valves,8591o valve repair products, and8592o epicardial ablation systems85938594C/VA8595o vascular closure devices,8596o angiography catheters,8597o guidewires, and8598o hemostasis introducers85998600Our products are sold in more than 130 countries around the world. Our largest8601geographic markets are the United States, Europe and Japan.86028603We compete on the basis of providing reliable products with advanced features.8604Our industry has undergone significant consolidation in the last decade and is8605very competitive. Our strategy requires significant investments in research and8606development in order to introduce new products, particularly in the cardiac8607rhythm management and the cardiology and vascular access therapy areas. We have8608also sought to improve our operating margins through a variety of techniques,8609including maintaining our average selling prices while improving the efficiency8610of our manufacturing operations. Our products are generally not affected by8611economic cycles. However, we expect cost containment pressure on healthcare8612systems to continue to place downward pressure on prices for our products. The8613industry in which we operate is characterized by frequent patent and product8614liability litigation, which are issues that we must manage.86158616The Company participates in several different markets, each of which has its own8617expected rate of growth. Management is particularly focused in the implantable8618cardioverter defibrillator (ICD) market, which includes congestive heart failure8619devices. The Centers for Medicare and Medicaid Services (CMS) recently expanded8620the indications for these devices that would be reimbursed by Medicare and8621Medicaid. As a result of this decision and clinical data from various studies of8622these devices, management estimates this market is to grow at a compounded rate8623of 20% per year for the next 3 years. Management's goal is to participate in the8624growth of the market and to increase the Company's market share of the ICD8625market which we currently estimate to be approximately 14%.86268627862818629<PAGE>863086318632Effective January 1, 2005, the Company formed an Atrial Fibrallation (AF)8633Division and a Cardiology Division to focus efforts on these two areas. As a8634result, the Daig Division will no longer function as a business unit. Management8635believes that AF is a prevalent, debilitating disease state that is not8636effectively treated at this time. Device technologies are emerging that may8637provide therapeutic improvements compared to current treatments. In addition,8638the electrophysiologist, the medical specialist who treats AF with devices, is8639also the primary customer of ICD products. Management believes that providing8640advanced AF products to electrophysiologists will generate goodwill that may8641lead to increased ICD sales. Finally, the creation of a separate Cardiology8642Division will facilitate management focus on not just the Angio-Seal product8643line, but on other products in the cardiology market as well.8644864586468647RESULTS OF OPERATIONS86488649FINANCIAL SUMMARY8650Net sales in 2004 increased approximately 19% over 2003 driven primarily by8651growth in our ICD and vascular closure devices, incremental revenue as a result8652of our acquisition of Getz Bros. Co., Ltd. in Japan (Getz Japan) in April 2003,8653and the positive impact of foreign currency translation as the U.S. dollar8654weakened against most currencies during 2004 as compared with 2003. Our ICD net8655sales grew approximately 41% to $583.7 million during 2004. Our vascular closure8656net sales increased approximately 32% to $287.9 million in 2004, strengthening8657our leadership position in the vascular closure market.86588659During 2004, we completed our acquisitions of Epicor Medical, Inc. (Epicor) and8660Irvine Biomedical, Inc. (IBI). The addition of these operations further8661strengthened our portfolio of products used to treat heart rhythm disorders.8662During 2003, we completed our acquisition of Getz Japan and Getz's related8663distribution operations in Australia. The addition of these operations further8664strengthened our presence in Japan and Australia.86658666Our results for 2004 include pre-tax $35.4 million special charges relating to8667the discontinuance of our Symmetry(TM) Bypass Aortic Connector Product line and8668Symmetry(TM) Bypass Aortic Connector litigation. Additionally, the Company8669recorded $9.1 million of purchased in-process research and development and a8670pre-tax $5.5 million charge resulting from the settlement of certain patent8671infringement litigation. The Company also recorded the reversal of $14.0 million8672of previously recorded income tax expense due to the conclusion of certain tax8673audits.86748675867628677<PAGE>86788679Net earnings and diluted net earnings per share for 2004 increased approximately868022% and 21%, respectively, over 2003 due primarily to incremental profits8681resulting from higher sales.86828683We ended the year with $688.0 million of cash and cash equivalents and $234.98684million of long-term debt. We have strong short-term credit ratings, with an A28685rating from Standard & Poor's and a P2 rating from Moody's. Our cash flows from8686operations remained strong during 2004, helping to further strengthen our8687balance sheet and fund the acquisitions of Epicor and IBI. We expect to use our8688future cash flows to fund internal development opportunities, reduce our debt8689and fund acquisitions, including the acquisition of Endocardial Solutions, Inc.8690(ESI) and Velocimed LLC (Velocimed) and our minority investment in ProRhythm,8691Inc. (ProRhythm) in January 2005. See ACQUISITIONS & MINORITY INVESTMENTS for a8692discussion of ESI, Velocimed and ProRhythm.86938694We utilize a 52/53-week fiscal year ending on the Saturday nearest December 31,8695but for simplicity of presentation, describe all periods as if the year end is8696December 31. Fiscal 2004 and 2002 each consisted of 52 weeks. Fiscal year 20038697consisted of 53 weeks, adding three additional selling days as compared with86982002 and 2004. The additional selling days occurred between the Christmas and8699New Year's Day holidays, which typically are lower volume selling days due to8700the elective nature of the procedures that use our devices. These additional8701selling days did not have a material impact on our net sales or results of8702operations for 2003.87038704CRITICAL ACCOUNTING POLICIES AND ESTIMATES8705Preparation of our consolidated financial statements in accordance with8706accounting principles generally accepted in the United States requires us to8707adopt various accounting policies and to make estimates and assumptions that8708affect the reported amounts in the financial statements and accompanying notes.8709Our significant accounting policies are disclosed in Note 1 to the consolidated8710financial statements.87118712On an ongoing basis, we evaluate our estimates and assumptions, including those8713related to accounts receivable allowance for doubtful accounts; estimated useful8714lives of diagnostic equipment; valuation of in-process research and development;8715goodwill and other intangible assets; income taxes; Silzone(R) special charge8716accruals; and legal reserves. We base our estimates on historical experience and8717various other assumptions that are believed to be reasonable under the8718circumstances, and the results form the basis for making judgments about the8719reported values of assets, liabilities, revenues and expenses. Actual results8720may differ from these estimates.87218722We believe that the following represent our most critical accounting estimates:87238724ACCOUNTS RECEIVABLE ALLOWANCE FOR DOUBTFUL ACCOUNTS: We grant credit to8725customers in the normal course of business, and generally do not require8726collateral or any other security to support our accounts receivable. We maintain8727an allowance for doubtful accounts for potential credit losses, which primarily8728consists of reserves for specific customer balances that we believe may not be8729collectible. We determine the adequacy of this allowance by regularly reviewing8730the accounts receivable agings, customer financial conditions and credit8731histories, and current economic conditions. In some developed markets and in8732many emerging markets, payments of certain accounts receivable balances are made8733by the individual countries' healthcare systems for which payment is dependent,8734to some extent, upon the political and economic environment within those8735countries. Although we consider our allowance for doubtful accounts to be8736adequate, if the financial condition of our customers or the individual8737countries' healthcare systems were to deteriorate and impair their ability to8738make payments to us, additional allowances may be required in future periods.8739The allowance for doubtful accounts was $31.3 million at December 31, 2004 and8740$31.9 million at December 31, 2003.87418742874338744<PAGE>87458746ESTIMATED USEFUL LIVES OF DIAGNOTIC EQUIPMENT: Diagnostic equipment is recorded8747at cost and is depreciated using the straight-line method over its estimated8748useful life of five to eight years. Diagnostic equipment primarily consists of8749programmers that are used by physicians and healthcare professionals to program8750and analyze data from pacemaker and ICD devices. The estimated useful life of8751this equipment is determined based on our estimates of its usage by the8752physicians and healthcare professionals, factoring in new technology platforms8753and rollouts. To the extent that we experience changes in the usage of this8754equipment or there are introductions of new technologies to the market, the8755estimated useful lives of this equipment may change in a future period.8756Diagnostic equipment had a net carrying value of $85.8 million and $68.7 million8757at December 31, 2004 and 2003, respectively. If we had used an estimated useful8758life on diagnostic equipment that was one year less than our current estimate,8759our 2004 depreciation expense would have been approximately $3.0 million higher.87608761VALUATION OF PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT (IPR&D), GOODWILL AND8762OTHER INTANGIBLE ASSETS: When we acquire another company, the purchase price is8763allocated, as applicable, between IPR&D, other identifiable intangible assets,8764tangible assets, and goodwill. IPR&D is defined as the value assigned to those8765projects for which the related products have not received regulatory approval8766and have no alternative future use. Determining the portion of the purchase8767price allocated to IPR&D and other intangible assets requires us to make8768significant estimates. The amount of the purchase price allocated to IPR&D and8769other intangible assets is determined by estimating the future cash flows of8770each project or technology and discounting the net cash flows back to their8771present values. The discount rate used is determined at the time of acquisition,8772in accordance with accepted valuation methods, and includes consideration of the8773assessed risk of the project not being developed to commercial feasibility.87748775Goodwill represents the excess of the aggregate purchase price over the fair8776value of net assets, including IPR&D, of the acquired businesses. Goodwill is8777tested for impairment annually for each reportable segment or more frequently if8778changes in circumstance or the occurrence of events suggest impairment exists.8779The test for impairment requires us to make several estimates about fair value,8780most of which are based on projected future cash flows. Our estimates associated8781with the goodwill impairment tests are considered critical due to the amount of8782goodwill recorded on our consolidated balance sheets and the judgment required8783in determining fair value amounts, including projected future cash flows.8784Goodwill was $593.8 and $407.0 million as of December 31, 2004 and 2003,8785respectively.87868787Other intangible assets consist primarily of customer lists and relationships,8788purchased technology, patents, and are amortized using the straight-line method8789over their estimated useful lives, ranging from 3 to 20 years. Other intangible8790assets also consist of trademarks which are indefinite lived intangibles and are8791not amortized. We review these intangible assets for impairment as changes in8792circumstance or the occurrence of events suggest the remaining value may not be8793recoverable. Other intangible assets, net of accumulated amortization, were8794$207.1 and $154.4 million as of December 31, 2004 and 2003, respectively.87958796INCOME TAXES: As part of the process of preparing our consolidated financial8797statements, we are required to estimate our income taxes in each of the8798jurisdictions in which we operate. This process involves estimating the actual8799current tax expense as well as assessing temporary differences in the treatment8800of items for tax and accounting purposes. These timing differences result in8801deferred tax assets and liabilities, which are included in our consolidated8802balance sheet. We must then assess the likelihood that our deferred tax assets8803will be recovered from future taxable income, and to the extent that we believe8804that recovery is not likely, a valuation allowance must be established. At8805December 31,88068807880848809<PAGE>8810881188122004, we had approximately $132.0 million of gross deferred tax assets,8813including net operating loss and tax credit carryforwards that will expire from88142005 to 2024 if not utilized. We believe that our deferred tax assets, including8815the net operating loss and tax credit carryforwards, will be fully realized8816based upon our estimates of future taxable income. As such, we have not recorded8817any valuation allowance for our deferred tax assets. If our estimates of future8818taxable income are not met, a valuation allowance for some of these deferred tax8819assets would be required.88208821We have not recorded U.S. deferred income taxes on certain of our non-U.S.8822subsidiaries' undistributed earnings, because such amounts are intended to be8823reinvested outside the United States indefinitely. However, should we change our8824business and tax strategies in the future and decide to repatriate a portion of8825these earnings to one of our U.S. subsidiaries, including cash maintained by8826these non-U.S. subsidiaries (see FINANCIAL CONDITION - LIQUIDITY AND CAPITAL8827RESOURCES), additional U.S. tax liabilities would be incurred.88288829We operate within multiple taxing jurisdictions and are subject to audits in8830these jurisdictions. These audits can involve complex issues, including8831challenges regarding the timing and amount of deductions and the allocation of8832income among various tax jurisdictions. Our U.S. federal tax filings prior to88332001 have been examined by the Internal Revenue Service (IRS), and we have8834settled all differences arising out of those examinations. The IRS is currently8835in the process of examining our U.S. federal tax returns for the calendar years88362001, 2002 and 2003.88378838We record our income tax provisions based on our knowledge of all relevant facts8839and circumstances, including the existing tax laws, our experience with previous8840settlement agreements, the status of current IRS examinations and our8841understanding of how the tax authorities view certain relevant industry and8842commercial matters. Although we have recorded all probable income tax accruals8843in accordance with Statement of Financial Accounting Standards (SFAS) No. 5,8844"ACCOUNTING FOR CONTINGENCIES" and SFAS No. 109, "ACCOUNTING FOR INCOME TAXES,"8845our accruals represent accounting estimates that are subject to the inherent8846uncertainties associated with the tax audit process, and therefore include8847certain contingencies. We believe that any potential tax assessments from the8848various tax authorities that are not covered by our income tax provision will8849not have a material adverse impact on our consolidated financial position or8850liquidity. However, they may be material to our consolidated results of8851operations of a future period.88528853SILZONE(R) SPECIAL CHARGE ACCRUALS: In January 2000, we initiated a worldwide8854voluntary recall of all field inventory of heart valve replacement and repair8855products incorporating Silzone(R) coating on the sewing cuff fabric. We8856concluded that we would no longer utilize Silzone(R) coating and recorded a8857special charge totaling $26.1 million during the first quarter of 2000 to cover8858various asset write-downs and anticipated costs associated with these matters.8859In the second quarter of 2002, we increased our Silzone(R) reserves by $118860million to cover additional anticipated costs. See further discussion of8861Silzone(R) litigation in Note 5 of the Consolidated Financial Statements. We8862have recorded an accrual for probable legal and other costs that we will incur8863to defend the various cases involving Silzone(R) devices, and we have recorded a8864receivable from our product liability insurance carriers for amounts expected to8865be recovered. We have not accrued for any amounts associated with probable legal8866settlements or judgments because we cannot reasonably estimate such amounts.8867However, we believe that no significant claims will ultimately be allowed to8868proceed as class actions in the United States, and, therefore, that all8869settlements and judgments will be covered under our remaining product liability8870insurance coverage (approximately $151 million at February 25, 2005), subject to8871the insurance companies' performance under the policies. As such, we believe8872that any costs (the material components of which are settlements, judgments and8873legal fees) not covered by our product liability88748875887658877<PAGE>887888798880insurance policies or existing reserves will not have a material adverse effect8881on our statement of financial position or liquidity, however, such costs may be8882material to our consolidated results of operations of a future period.88838884Our remaining product liability insurance for Silzone(R) claims consists of a8885number of layers, each of which is covered by one or more insurance companies.8886Our present layer of insurance, which is a $30 million layer of which8887approximately $11 million has been reimbursed as of February 25, 2005, is8888covered by Lumberman's Mutual Casualty Insurance, a unit of the Kemper Insurance8889Companies (collectively referred to as Kemper). Kemper's credit rating by A.M.8890Best has been downgraded to a "D" (poor). Kemper is currently in "run off,"8891which means that it is not issuing new policies and is, therefore, not8892generating any new revenue that could be used to cover claims made under8893previously-issued policies. In the event Kemper is unable to pay part or all of8894the claims directed to it, we believe the other insurance carriers in our8895program will take the position that we will be directly liable for any claims8896and costs that Kemper is unable to pay, and that insurance carriers at policy8897layers following Kemper's layer will not provide coverage for Kemper's layer.8898Kemper also provides part of the coverage for Silzone(R) claims in our final8899layer of insurance ($20 million of the final $50 million layer).89008901It is possible that Silzone(R) costs and expenses will reach the limit of one or8902both of the Kemper layers of insurance coverage, and it is possible that Kemper8903will be unable to meet its obligations to us. If this were to happen, we could8904incur a loss of up to approximately $39 million as of February 25, 2005. We have8905not accrued for any such losses as potential losses are possible, but not8906estimable, at this time.89078908LEGAL RESERVES: We operate in an industry that is susceptible to significant8909product liability and intellectual property claims. We record a liability in our8910consolidated financial statements for costs related to claims, including future8911legal costs, settlements and judgments where we have assessed that a loss is8912probable and an amount can be reasonably estimated. Product liability claims may8913be brought by individuals seeking relief for themselves or, increasingly, by8914groups seeking to represent a class. In addition, claims may be asserted against8915us in the future relative to events that are not known to us at the present8916time. Our product liability insurance coverage during most of 2004 was $4258917million, with a $75 million deductible per claim. In light of our significant8918self-insured retention, our product liability insurance coverage is designed to8919help protect against a catastrophic claim. We record a liability in our8920consolidated financial statements for costs related to claims, including future8921legal costs, settlements and judgments where we have assessed that a loss is8922probable and an amount can be reasonably estimated.89238924Additionally, a substantial amount of intellectual property litigation occurs in8925our industry. In November 1996, one of our competitors, Guidant Corporation8926(Guidant), initiated a lawsuit against us alleging that we did not have a8927license to certain patents which they controlled and as such, we were infringing8928on those patents. A jury found against us in July 2001; however, the judge8929overseeing the trial issued post-trial rulings in February 2002 which8930essentially set aside the jury's $140 million damage assessment. Guidant8931appealed certain aspects of the judge's ruling, and the Appellate Court ruled8932that the matter should return to the district court for further proceedings. We8933are requesting that the U.S. Supreme Court review the matter. It is not expected8934that the U.S. Supreme Court would rule on this request until sometime during the8935second quarter of 2005. We will continue to vigorously defend against the claims8936that Guidant has asserted in this lawsuit.89378938In February 2004, Guidant initiated two lawsuits against us alleging that a8939number of our CRT products infringe on two of their patents. We have not8940submitted a substantive response to Guidant's February89418942894368944<PAGE>8945894689472004 claims at this time. To date, we have not recorded any liability for any8948legal settlements or judgments related to these litigation matters since8949potential losses arising from any legal settlements or judgments are possible,8950but not estimable at this time. The range of such a loss could be material to8951our consolidated financial position, liquidity and results of operations.89528953ACQUISITIONS & MINORITY INVESTMENT8954Acquisitions and minority investments can have an impact on the comparison of8955our operating results and financial condition from year to year.89568957On February 15, 2005, we announced that we signed a definitive agreement to8958acquire the business of Velocimed, for $82.5 million less approximately $8.58959million of cash expected to be on hand at Velocimed at closing plus additional8960contingent payments tied to revenues in excess of minimum future targets, and a8961milestone payment upon U.S. Food and Drug Administration (FDA) approval of the8962Premere(TM) patent foramen ovale closure system. Velocimed is a privately held8963company which develops and manufactures specialty interventional cardiology8964devices. The first additional contingent payment contemplated under the8965agreement would be paid in March 2007. The results of operations of the8966Velocimed business acquisition are expected to be included in our consolidated8967results of operations beginning in the second quarter of 2005.89688969On January 13, 2005, we completed our acquisition of ESI for $280.5 million,8970which includes closing costs less $8.2 million of cash acquired. ESI had been8971publicly traded on the NASDAQ market under the ticker symbol ECSI. ESI develops,8972manufactures, and markets the EnSite(R) System used for the navigation and8973localization of diagnostic and therapeutic catheters used by physician8974specialists to diagnose and treat cardiac rhythm disorders. We expect to record8975a purchased in-process R&D charge of approximately $12 million associated with8976the completion of this transaction during the first quarter of 2005. The results8977of operations of ESI will be included in the Company's consolidated results of8978operations beginning in the first quarter of 2005.89798980On October 7, 2004, we completed our acquisition of the remaining capital stock8981of IBI, a privately held company which develops and sells EP catheter products8982used by physician specialists to diagnose and treat cardiac rhythm disorders. In8983April 2003, we acquired a minority investment of 14% in IBI through the8984Company's acquisition of Getz Japan. We paid approximately $50.6 million to8985acquire the remaining 86% of IBI capital stock that we did not already own. This8986amount was net of cash acquired from IBI as well as consideration from the8987exercise of IBI stock options. The original investment of $4.5 million was8988accounted for under the cost method until the date the remaining shares were8989purchased. We recorded a purchased in-process R&D charge of $9.1 million in the8990fourth quarter of 2004 associated with the completion of this transaction.89918992On June 8, 2004, we completed our acquisition of the remaining capital stock of8993Epicor, a company focused on developing products which use high intensity8994focused ultrasound (HIFU) to ablate cardiac tissue. In May 2003, we made an8995initial $15.0 million minority investment in Epicor and acquired an option to8996purchase the remaining ownership of Epicor prior to June 30, 2004 for $185.08997million. Pursuant to the option, we paid $185.0 million in cash to acquire the8998remaining outstanding capital stock of Epicor on June 8, 2004. The original8999investment was accounted for under the cost method until the date the remaining9000shares were purchased. Net consideration paid for the total acquisition was9001$198.0 million, which includes closing costs less $2.4 million of cash acquired.90029003On April 1, 2003, we completed the acquisition of Getz Japan, a distributor of9004medical technology products in Japan and our largest volume distributor in9005Japan. We paid 26.9 billion Japanese Yen in90069007900879009<PAGE>901090119012cash to acquire 100% of the outstanding common stock of Getz Japan. Net9013consideration paid was $219.2 million, which includes closing costs less $12.09014million of cash acquired. We also acquired the net assets of Getz Bros. & Co.9015(Aust.) Pty. Limited and Medtel Pty. Limited (collectively referred to as Getz9016Australia) related to the distribution of our products in Australia for $6.29017million in cash, including closing costs. Prior to the acquisition of Getz Japan9018and Getz Australia (collectively referred to as Getz), we recognized revenue9019from the sale of our products to Getz as our distributor. Subsequent to the9020acquisition date, we recognized additional revenue from Getz related to the sale9021of non-St. Jude Medical manufactured products sold by Getz and the incremental9022revenue on the sale of St. Jude Medical manufactured products.90239024The results of operations of the acquisitions noted above have been included in9025our consolidated results of operations since the acquisition date.90269027MINORITY INVESTMENT: On January 12, 2005, we made an initial equity investment9028of $12.5 million pursuant to the Preferred Stock Purchase and Acquisition Option9029Agreement (the Purchase and Option Agreement) and an Agreement and Plan of9030Merger (the Merger Agreement) entered into with ProRhythm. The initial9031investment equated to a 9% ownership interest and is accounted for under the9032cost method. ProRhythm is developing a HIFU catheter-based ablation system for9033the treatment of atrial fibrillation. Under the terms of the Purchase and Option9034Agreement, we have the option to make, or ProRhythm can require us to make, an9035additional $12.5 million equity investment through January 31, 2006, upon9036completion of specific clinical and regulatory milestones.90379038The Purchase and Option Agreement also provides that we have the exclusive9039right, but not the obligation, through the later of 3 months after the date9040ProRhythm delivers certain clinical trial data or March 31, 2007, to acquire9041ProRhythm for $125 million in cash consideration payable to the ProRhythm9042stockholders (other than us) pursuant to the terms and conditions set forth in9043the Merger Agreement, with additional cash consideration payable to the9044ProRhythm stockholders (other than us) after the consummation of the9045acquisition, if ProRhythm achieves certain performance-related milestones.90469047SEGMENT REVIEW9048We have two reportable segments, the Cardiac Rhythm Management/Cardiac Surgery9049(CRM/CS) segment and the Daig segment, which focus on the development and9050manufacture of our products. The primary products produced by each segment are:9051CRM/CS - pacemaker and ICD systems, mechanical and tissue heart valves and other9052cardiac surgery products; Daig - electrophysiology catheters, vascular closure9053devices and other cardiology and vascular access products.90549055Our reportable segments include end customer revenues from the sale of products9056they each develop and manufacture. The costs included in each of the reportable9057segments' operating results include the direct costs of the products sold to end9058customers and operating expenses managed by each of the segments. Certain costs9059of goods sold and operating expenses managed by our selling and corporate9060functions are not included in segment operating profit. Because of this, segment9061operating profit is not representative of the operating profit of our products9062in these segments.90639064906589066<PAGE>906790689069The following table presents certain financial information about our reportable9070segments (in thousands):90719072<TABLE>9073<CAPTION>9074CRM/CS DAIG OTHER TOTAL9075- --------------------------------------------------------------------------------------------9076<S> <C> <C> <C> <C>9077FISCAL YEAR ENDED DECEMBER 31, 20049078Net sales $ 1,729,862 $ 470,720 $ 93,591 $ 2,294,1739079Operating profit (a) 1,015,621 254,270 (733,933) 535,9589080Total assets (b)(c) 877,448 156,972 2,196,327 3,230,7479081- --------------------------------------------------------------------------------------------90829083FISCAL YEAR ENDED DECEMBER 31, 20039084Net sales $ 1,499,425 $ 366,433 $ 66,656 $ 1,932,5149085Operating profit (a) 873,904 202,007 (619,966) 455,9459086Total assets (b)(c) 639,724 147,270 1,766,488 2,553,4829087- --------------------------------------------------------------------------------------------90889089FISCAL YEAR ENDED DECEMBER 31, 20029090Net sales $ 1,305,750 $ 284,179 $ -- $ 1,589,9299091Operating profit (a) 713,341 149,592 (492,978) 369,9559092Total assets (b)(c) 723,414 134,610 1,093,355 1,951,3799093============================================================================================9094</TABLE>90959096(a) Other operating profit includes certain costs of goods sold and9097operating expense managed by our selling and corporate functions. In9098fiscal year 2004, we recorded $40.9 million of special charges that9099are included in the Other operating profit. Additionally, we recorded9100$9.1 million of purchased in-process research and development in9101conjunction with the IBI acquisition that is included in the Daig9102operating profit.9103(b) Other total assets include the assets managed by our selling and9104corporate functions, including end customer receivables, inventory,9105corporate cash and equivalents and deferred income taxes.9106(c) We do not compile expenditures for long-lived assets by segment and,9107therefore, we have not included this information as it is9108impracticable to do so.91099110The following discussion of the changes in our net sales is provided by class of9111similar products, which is the primary focus of our sales activities. This9112analysis sufficiently describes the changes in our sales results for our two9113reportable segments.9114911591169117911891199120912191229123912491259126912791289129913099131<PAGE>913291339134NET SALES9135Net sales by geographic markets were as follows (in thousands):913691372004 2003 20029138- -------------------------------------------------------------------9139United States $1,264,756 $1,129,055 $1,042,7669140International9141Europe 577,058 465,369 347,9369142Japan 267,723 207,431 95,8139143Other 184,636 130,659 103,4149144- -------------------------------------------------------------------91451,029,417 803,459 547,1639146- -------------------------------------------------------------------9147$2,294,173 $1,932,514 $1,589,9299148===================================================================91499150Foreign currency translation relating to our international operations can have a9151significant impact on our operating results from year to year. Foreign currency9152translation had a net favorable impact on 2004 net sales as compared with 20039153of approximately $73 million, due primarily to the strengthening of the Euro and9154the Japanese Yen against the U.S. dollar. Foreign currency translation had a9155favorable impact on 2003 net sales as compared with 2002 of approximately $719156million due primarily to the strengthening of the Euro against the U.S. dollar.9157These amounts are not indicative of the net earnings impact of foreign currency9158translation for 2004, 2003 and 2002 due to partially offsetting unfavorable9159foreign currency translation impacts on cost of sales and operating expenses.91609161Net sales by class of similar products were as follows (in thousands):91629163<TABLE>9164<CAPTION>91652004 2003 20029166- ----------------------------------------------------------------------------------------9167<S> <C> <C> <C>9168CARDIAC RHYTHM MANAGEMENT9169Pacemaker systems $ 890,076 $ 826,121 $ 751,5759170ICD systems 583,694 414,255 303,2189171Electrophysiology catheters 156,840 124,836 92,6969172- ----------------------------------------------------------------------------------------91731,630,610 1,365,212 1,147,4899174CARDIAC SURGERY9175Heart valves 253,236 250,840 232,9869176Other cardiac surgery products 21,743 20,093 17,9719177- ----------------------------------------------------------------------------------------9178274,979 270,933 250,9579179CARDIOLOGY AND VASCULAR ACCESS9180Vascular closure devices 287,930 218,215 156,4749181Other cardiology and vascular access products 100,654 78,154 35,0099182- ----------------------------------------------------------------------------------------9183388,584 296,369 191,48391849185- ----------------------------------------------------------------------------------------9186$2,294,173 $1,932,514 $1,589,9299187========================================================================================9188</TABLE>918991902004 NET SALES COMPARED TO 2003: Overall, net sales increased 19% in 2004 versus91912003. 2004 net sales were favorably impacted by growth in unit volume of9192approximately 17% and incremental revenue of $42.3 million resulting from the9193Getz acquisitions. The additional revenue from Getz was generated from the sale9194of non-St. Jude Medical manufactured products sold by Getz and the incremental9195revenue on the sale of St. Jude Medical manufactured products. Prior to April 1,91962003, we recognized revenue from the sale of our products to Getz as our9197distributor. Foreign currency translation had a favorable impact on net sales in91982004 as compared with 2003 of approximately $73.0919992009201109202<PAGE>920392049205million due primarily to the strengthening of the Euro and the Yen against the9206U.S. dollar. Overall, average selling price declines negatively impacted net9207sales in 2004 by approximately 5% compared with 2003, due to a larger portion of9208our sales mix coming from lower-priced markets outside of the United States.92099210Cardiac rhythm management net sales increased 19% in 2004 over 2003. 2004 CRM9211net sales were favorably impacted by growth in unit volume driven by sales of9212traditional pacemaker and ICD products and the introduction of products into the9213cardiac resynchronization therapy (CRT) segments of the U.S. pacemaker and ICD9214market. Additionally during 2004, CRM net sales increased due to incremental9215revenue of approximately $19.8 million related to the Getz acquisitions. Foreign9216currency translation also had a favorable impact on CRM net sales in 2004 as9217compared with 2003 of approximately $49.3 million. The increases in CRM net9218sales were partially offset by a 5% decline in average selling price, which is9219primarily due to a larger portion of our sales mix coming from lower-priced9220markets outside of the United States. Net sales of pacemaker systems increased92218% during 2004 due to a 10% increase in pacemaker unit sales, approximately9222$30.9 million of favorable impact from foreign currency translation and $12.59223million of favorable impact from the Getz acquisitions. These increases for the9224year were offset in part by a 7% decline in average selling price resulting from9225a larger portion of our sales mix coming from lower-priced markets outside of9226the United States and lower average selling prices in the United States. Net9227sales of ICD systems increased 41% in 2004, due to a 39% increase in ICD unit9228sales offset in part by a 1% decline in average selling prices primarily due to9229a larger portion of our sales mix coming from lower-priced markets outside of9230the United States. Net sales of ICD systems in 2004 also included favorable9231impact from foreign currency translation of approximately $13.0 million.9232Electrophysiology catheter net sales increased 26% in 2004 due to a 15% increase9233in unit sales and approximately $5.4 million of favorable impact from foreign9234currency translation. Electrophysiology catheter net sales in 2004 also9235benefited from $7.3 million of favorable impact from the Getz acquisitions.92369237Cardiac surgery net sales increased 2% in 2004 over 2003. The increase in 20049238CS net sales was due to $11.9 million of favorable impact from foreign currency9239translation and $9.6 million of favorable impact from the Getz acquisitions.9240These increases were offset by a global average selling price decline of9241approximately 6% and a low single-digit decrease in unit volume. Heart valve net9242sales increased 1% in the year 2004, due primarily to an increase in unit volume9243of approximately 1% and approximately $10.8 million of favorable impact from9244foreign currency translation and $4.6 million of favorable impact from the Getz9245acquisitions. These increases were offset by a 6% decline in global average9246selling price primarily due to a larger portion of our sales mix coming from9247lower-priced markets outside of the United States. Net sales of other cardiac9248surgery products increased 8% during 2004 primarily due to $1.1 million of9249favorable impact from foreign currency translation and $5.0 million of favorable9250impact from the Getz acquisitions. These increases for other cardiac surgery9251products were offset by an 18% decrease in unit sales and a 4% decrease in9252average selling price.92539254Cardiology and vascular access net sales increased 31% during 2004 compared to92552003. 2004 C/VA net sales were favorably impacted by growth in unit volume of9256approximately 26%, $11.8 million of favorable impact from foreign currency9257translation and incremental revenue of $12.9 million resulting from the Getz9258acquisitions. These increases were offset by a 3% decrease in average selling9259price, in part due to a larger portion of our C/VA sales mix coming from9260lower-priced markets outside of the United States. Net sales of vascular closure9261devices increased 32% during 2004 due to a 31% increase in Angio-Seal(TM) unit9262sales and approximately $7.8 million of favorable impact from foreign currency9263translation. These increases were partially offset by a low single-digit9264percentage decline in global average selling prices due to a larger portion of9265our sales mix coming from lower-priced markets926692679268119269<PAGE>927092719272outside of the United States. Net sales of other cardiology and vascular access9273products increased 29% in 2004 due to a 12% increase in unit sales, $4.0 million9274of favorable impact from foreign currency translation and $12.9 million of sales9275of non-St. Jude Medical manufactured products distributed by Getz Japan. These9276increases were offset by a low single-digit decline in average selling prices.927792782003 NET SALES COMPARED TO 2002: Cardiac rhythm management net sales increased927919% in 2003 versus 2002. Net sales of pacemaker systems increased 10% in 20039280due to an increase in pacemaker unit sales of approximately 5% from 2002,9281approximately $33 million of favorable impact from foreign currency translation9282and $29 million of favorable impact from the Getz acquisitions. Pacemaker net9283sales in 2003 benefited from the worldwide launches of our Identity(R) ADx,9284Integrity(R) ADx and Verity(TM) ADx pacemaker product families. These increases9285were offset in part by average selling price declines of approximately 3%. Net9286sales of ICD systems increased 37% in 2003 due to growth in ICD unit sales of9287approximately 39%, offset in part by average selling price declines of9288approximately 6%. ICD net sales in 2003 benefited from the worldwide launch in9289mid-2003 of our Epic(TM)+ DR ICD containing AF Suppression(TM) technology. Net9290sales of ICD systems in 2003 also included approximately $12 million of9291favorable impact from foreign currency translation. Electrophysiology catheter9292net sales increased 35% in 2003 due primarily to a 9% increase in unit sales,9293$18 million of favorable impact from the Getz acquisitions and approximately $49294million of favorable impact from foreign currency translation.92959296Cardiac surgery net sales increased 8% in 2003 versus 2002. Heart valve net9297sales increased 8% in 2003 due primarily to approximately $12 million of9298favorable impact from foreign currency translation and $10 million of favorable9299impact from the Getz acquisitions. These increases were partially offset by a9300global average selling price decline of approximately 4% due to a larger portion9301of our sales mix coming from lower-priced international markets. Net sales of9302other cardiac surgery products increased 12% in 2003, due primarily to $139303million of favorable impact from the Getz acquisitions, offset in part by a 60%9304decrease in aortic connector unit sales.93059306Cardiology and vascular access net sales increased 55% during 2003 versus 2002.9307Net sales of vascular closure devices increased 40% in 2003 due to an increase9308of 37% in Angio-Seal(TM) unit sales and approximately $8 million of favorable9309impact from foreign currency translation. These increases were partially offset9310by a global average selling price decline of approximately 3% due to a larger9311portion of our sales mix coming from lower-priced international markets. Net9312sales in 2003 benefited from the global launch of our fifth-generation9313Angio-Seal(TM) vascular closure product, the STS Plus, in the third quarter. Net9314sales of other cardiology and vascular access products increased 123% in 20039315due primarily to $36 million of sales of non-St. Jude Medical manufactured9316products distributed in Japan by Getz, a 19% increase in unit sales and9317approximately $2 million of favorable impact from foreign currency translation.93189319GROSS PROFIT9320Gross profits were as follows (in thousands):932193222004 2003 20029323- ------------------------------------------------------------------------9324Gross profit $ 1,615,123 $ 1,329,423 $ 1,083,9839325Percentage of net sales 70.4% 68.8% 68.2%9326- ------------------------------------------------------------------------93279328Gross profit for 2004 totaled $1,615.1 million, or 70.4% of net sales, as9329compared with $1,329.4 million, or 68.8% of net sales, for 2003. The increase in9330our gross profit percentage during 2004 is primarily related to lower CRM cost9331of sales in Japan of approximately 0.7 percentage points now that933293339334129335<PAGE>933693379338we have sold through the CRM inventory on hand at the time of the Getz9339acquisition, reduced material costs and increased labor efficiencies due to9340continued improvements in our CRM manufacturing processes, and increased sales9341of higher margin ICD systems related primarily to the launch of CRT products in9342the United States. These increases are partially offset by $12.1 million of9343inventory write-downs and equipment write-offs in 2004 related to the9344discontinuance of our Symmetry Bypass System Aortic Connector product line (see9345further details under SPECIAL CHARGES). In 2005, we anticipate that our gross9346profit percentage will increase to a range of 72.0% to 73.0% due to the9347increased sales of higher margin ICD systems and continual efficiency9348improvements in our manufacturing process.93499350Gross profit for 2003 totaled $1,329.4 million, or 68.8% of net sales, as9351compared with $1,084.0 million, or 68.2% of net sales, 2002. The increases in9352our gross profit percentage during 2003 is primarily a result of reduced9353material costs and increased labor efficiencies due to continued improvements in9354our CRM manufacturing processes, and to lower overhead costs per unit as a9355result of higher CRM production volumes. In addition, our ongoing cost9356management efforts helped to improve our gross profit percentage. These9357increases were offset by higher CRM cost of sales in Japan as a result of the9358Getz acquisition of approximately $30.9 million or 1.6 percentage points.93599360On April 1, 2003, we valued the Getz Japan-owned inventory of pacemaker systems9361and heart valves at fair value in accordance with acquisition accounting rules.9362This fair value was established as the price at which we had sold the inventory9363to Getz. As these inventory items were sold subsequent to April 1, 2003, our9364gross profit percentage was reduced since the gross profit recognized by Getz9365Japan was less than our historical gross profit related to the sale of these9366items to Getz Japan as our distributor.93679368OPERATING EXPENSES9369Certain operating expenses were as follows (in thousands):937093712004 2003 20029372- ------------------------------------------------------------------------------9373Selling, general and administrative $ 759,320 $ 632,395 $ 513,6919374Percentage of net sales 33.1% 32.7% 32.3%93759376Research and development $ 281,935 $ 241,083 $ 200,3379377Percentage of net sales 12.3% 12.5% 12.6%9378- ------------------------------------------------------------------------------93799380SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSE: SG&A expense for 20049381totaled $759.3 million, or 33.1% of net sales, as compared with $632.4 million,9382or 32.7% of net sales, for 2003. This increase in SG&A as a percentage of net9383sales is primarily due to the full-year impact of the addition of the Getz9384direct sales organization beginning April 1, 2003, which included approximately9385400 sales, sales support and marketing personnel. In addition, we incurred9386increased selling and marketing expenses in 2004 in conjunction with our entry9387into the CRT segments of the U.S. pacemaker and ICD markets in 2004 primarily9388related to headcount additions to support the increased sales activity. These9389headcount increases in our worldwide selling organizations were offset, in part,9390by the effects of spreading certain relatively fixed elements of our selling and9391administrative costs over a revenue base that grew 19% in 2004. We anticipate9392that SG&A expense as a percentage of net sales will range from 33% to 34% in93932005.93949395SG&A expense for 2003 totaled $632.4 million, or 32.7% of net sales, as compared9396with $513.7 million, or 32.3% of net sales, for 2002. SG&A expense as a9397percentage of net sales increased 0.4 percentage points in 2003 when compared to93982002. This increase is due primarily to the addition of the Getz direct sales9399organization beginning April 1, 2003, which included approximately 400 sales,9400sales940194029403139404<PAGE>940594069407support and marketing personnel. In addition, we incurred increased selling and9408marketing expenses in 2003 in anticipation of our entry into the CRT segments of9409the U.S. pacemaker and ICD markets in 2004. These headcount increases in our9410worldwide selling organizations were offset, in part, by the effects of9411spreading certain relatively fixed elements of our selling and administrative9412costs over a revenue base that grew 22% in 2003.94139414RESEARCH AND DEVELOPMENT (R&D) EXPENSE: R&D expenses in 2004 totaled $281.99415million, or 12.3% of net sales, compared with $241.1 million, or 12.5% of net9416sales, for 2003. R&D expense increased in 2004, 2003 and 2002 due primarily to9417our increased spending on the development of new products and related clinical9418trials, including our CRT devices and other products to treat emerging9419indications including atrial fibrillation. We anticipate that R&D expense as a9420percentage of net sales will range from 12% to 13% in 2005.94219422PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES94239424IRVINE BIOMEDICAL INC.: In October 2004, we acquired the remaining capital stock9425of IBI (see further discussion in Note 2 of the consolidated financial9426statements). At the date of acquisition, $9.1 million of the purchase price was9427expensed as purchased in-process research and development related to therapeutic9428catheters that had not yet reached technological feasibility and had no future9429alternative use. These devices are part of an ablation system in which the9430catheters are connected to a generator which delivers radiofrequency or9431ultrasound energy through the catheter to create lesions through ablation of9432cardiac tissue. The acquisition of IBI is expected to further enhance our9433portfolio of products used to treat heart rhythm disorders. In 2004, we incurred9434$0.3 million in research and development costs related to these products and we9435expect to incur $3.4 million in future periods to bring these products to9436commercialization in various markets. These costs are being funded by internally9437generated cash flows.94389439SPECIAL CHARGES944094412004 SPECIAL CHARGES94429443EDWARDS LIFESCIENCES CORPORATION: In December 2004, we settled a patent9444infringement lawsuit with Edwards LifeSciences Corporation and recorded a9445pre-tax charge of $5.5 million.94469447SYMMETRY BYPASS SYSTEM AORTIC CONNECTOR PRODUCT LINE DISCONTINUANCE: On9448September 23, 2004, management committed the Company to a plan to discontinue9449developing, manufacturing, marketing and selling its Symmetry Bypass System9450Aortic Connector (Symmetry(TM) device). The decision to discontinue developing,9451manufacturing, marketing and selling the Symmetry(TM) device was primarily based9452on losses incurred related to the product over the previous three years and the9453prospect of ongoing operating losses, resulting from a decrease in the number of9454coronary artery bypass graft surgery cases and an apparent slow down in the9455adoption of off-pump procedures for which the Symmetry(TM) device was developed.94569457In conjunction with the plan, we recorded a pre-tax charge in the third quarter9458of 2004 of $14.4 million. The charge was comprised of $4.4 million of inventory9459write-offs, $4.1 million of fixed asset write-offs, $3.6 million of sales9460returns, $1.3 million of contract termination and other costs, primarily related9461to a leased facility, and $1.0 million in workforce reduction costs. These9462activities have been completed and all payments required in connection with the9463charge are expected to be made by June 30, 2005. The portion of the charge that9464is expected to result in future cash expenditures is estimated to be $2.99465million. In addition, we expect to incur additional future expense for related9466matters totaling946794689469149470<PAGE>947194729473approximately $6.5 million in periods prior to 2007. A summary of the activity9474related to the remaining accruals for customer returns, contract termination,9475and workforce reduction costs during the year ended December 31, 2004 is as9476follows (in thousands):94779478<TABLE>9479<CAPTION>9480CUSTOMER CONTRACT WORKFORCE9481RETURNS AND TERMINATION AND REDUCTION AND9482RELATED COSTS RELATED COSTS RELATED COSTS TOTAL9483- -----------------------------------------------------------------------------------------------------------------------------9484<S> <C> <C> <C> <C>9485Accrual for Product Discontinuance $ 3,600 $ 1,308 $ 1,002 $ 5,9109486Cash payments or credits issued (1,356) (1,140) (428) (2,924)9487- -----------------------------------------------------------------------------------------------------------------------------9488Balance at December 31, 2004 $ 2,244 $ 168 $ 574 $ 2,9869489- -----------------------------------------------------------------------------------------------------------------------------9490</TABLE>94919492SYMMETRY BYPASS SYSTEM AORTIC CONNECTOR LITIGATION: There are sixteen legal9493cases in the United States pending as of February 25, 2005, alleging that our9494Symmetry(TM) device caused bodily injury or might cause bodily injury. Four of9495these matters seek class action status (one of these has already been dismissed,9496but is now on appeal, another is presently stayed). There are also a number of9497persons who have made a claim against us involving the Symmetry(TM) device9498without filing a lawsuit. During the third quarter of 2004, the number of cases9499increased, and the number of persons asserting claims outside of litigation9500increased as well. With this background, we determined that it was probable that9501a liability for future legal fees to defend the cases had been incurred and the9502amount of such fees was reasonably estimable. As a result, we recorded a pre-tax9503charge in the third quarter of 2004 of $21.0 million to reflect this liability.9504No lawsuits involving the product were initiated against us during the fourth9505quarter of 2004, and the number of claims asserted outside of the litigation has9506been minimal since the third quarter of 2004.95079508SILZONE(R) SPECIAL CHARGES95099510On January 21, 2000, we initiated a worldwide voluntary recall of all field9511inventories of heart valve replacement and repair products incorporating9512Silzone(R) coating on the sewing cuff fabric. We concluded that we would no9513longer utilize Silzone(R) coating. As a result of the voluntary recall and9514product discontinuance, we recorded a special charge totaling $26.1 million9515during the first quarter of 2000. The $26.1 million special charge consisted of9516asset write-downs ($9.5 million), legal and patient follow-up costs ($14.49517million) and customer returns and related costs ($2.2 million).95189519In the second quarter of 2002, we determined that the Silzone(R) reserves should9520be increased by $11.0 million as a result of difficulties in obtaining certain9521reimbursements from our insurance carriers under our product liability insurance9522policies ($4.6 million), an increase in our estimate of the costs associated9523with future patient follow-up as a result of extending the time period in which9524we planned to perform patient follow-up activities ($5.8 million) and an9525increase in other related costs ($0.6 million).95269527Our product liability insurance coverage for Silzone(R) claims consists of a9528number of policies with different carriers. During 2002, we observed a trend9529where various insurance companies were not reimbursing us or outside legal9530counsel for a variety of costs incurred, which we believed should be paid under9531the product liability insurance policies. These insurance companies were either9532refusing to pay the claims or had delayed providing an explanation for9533non-payment for an extended period of time. Although we believe we have legal9534recourse from these insurance carriers for the costs they are refusing to pay,9535the additional costs we would need to incur to resolve these disputes may exceed9536the amount we would recover. As a result of these developments, we increased the9537Silzone(R) reserves by $4.6 million in the second quarter of 2002, which9538represents the existing disputed costs already incurred953995409541159542<PAGE>954395449545at that time plus the anticipated future costs where we expect similar9546resistance from the insurance companies on reimbursement.95479548During the fourth quarter of 2003, the Company reclassified $15.7 million of9549receivables from the Company's insurance carriers recorded in the Silzone(R)9550special charge accrual to other current assets. This amount related to probable9551future legal costs associated with the Silzone(R) litigation.95529553A summary of the legal and monitoring costs and customer returns and related9554costs activity is as follows (in thousands):95559556<TABLE>9557<CAPTION>9558LEGAL AND CUSTOMER9559MONITORING RETURNS AND9560COSTS RELATED COSTS TOTAL9561- ------------------------------------------------------------------------------------------------9562<S> <C> <C> <C>9563Initial expense and accrual in 2000 $ 14,397 $ 2,239 $ 16,6369564Cash payments (5,955) (2,239) (8,194)9565- ------------------------------------------------------------------------------------------------9566Balance at December 31, 2000 8,442 -- 8,44295679568Cash payments (3,042) -- (3,042)9569- ------------------------------------------------------------------------------------------------9570Balance at December 31, 2001 5,400 -- 5,40095719572Additional expense 10,433 567 11,0009573Cash payments (2,442) (59) (2,501)9574- ------------------------------------------------------------------------------------------------9575Balance at December 31, 2002 13,391 508 13,89995769577Cash payments (1,206) (22) (1,228)9578Reclassification of legal accruals 15,721 -- 15,7219579- ------------------------------------------------------------------------------------------------9580Balance at December 31, 2003 27,906 486 28,39295819582Cash payments (1,471) (305) (1,776)9583- ------------------------------------------------------------------------------------------------9584Balance at December 31, 2004 $ 26,435 $ 181 $ 26,6169585- ------------------------------------------------------------------------------------------------9586</TABLE>95879588In addition to the amounts available under the above Silzone(R) reserves, we9589have approximately $151 million remaining in product liability insurance9590currently available for the Silzone(R)-related matters. See discussion of one of9591our product liability insurance carriers, Kemper, under CRITICAL ACCOUNTING9592POLICIES AND ESTIMATES - SILZONE(R) SPECIAL CHARGE ACCRUALS.95939594OTHER INCOME (EXPENSE)95959596Other income (expense) consisted of the following (in thousands):959795982004 2003 20029599- -----------------------------------------------------------------------------9600Equity method losses $ (2,091) $ (3,530) $ --9601Interest income 10,093 7,031 5,4819602Interest expense (4,810) (3,746) (1,754)9603Other (1,958) (593) (324)9604- -----------------------------------------------------------------------------9605Other income (expense) $ 1,234 $ (838) $ 3,4039606- -----------------------------------------------------------------------------96079608The increase in other income (expense) during 2004 as compared with 2003 was due9609primarily to higher levels of interest income as a result of higher average9610invested cash balances and a decrease in961196129613169614<PAGE>961596169617equity method losses related to Epicor as it was acquired during 2004. These9618increases were offset in part by interest expense as a result of higher levels9619of borrowings and increased interest rates and the recording of equity method9620losses related to the IBI investment.96219622The decrease in other income (expense) during 2003 as compared with 2002 was due9623primarily to higher levels of interest expense as a result of borrowings for our9624Getz Japan acquisition in 2003 and our August 2003 share repurchase and the9625recording of equity method losses related to the Epicor investment, offset in9626part by higher levels of interest income as a result of higher average invested9627cash balances.96289629INCOME TAXES9630Our effective income tax rates were 23.7% in 2004 and 26.0% in 2003 and 2002.9631During 2004, we recorded a $9.1 million purchased in-process research and9632development charge that was not deductible for income tax purposes. In addition9633in 2004, we recorded a reversal of approximately $14.0 million previously9634recorded tax expense due to the finalization of certain tax examinations. We9635anticipate our effective tax rate will increase to a range of 27.0% to 27.5% in96362005.96379638NET EARNINGS9639Net earnings were $409.9 million in 2004, a 22% increase over 2003, and diluted9640earnings per share were $1.10 in 2004, a 21% increase over 2003. Net earnings9641were $336.8 million in 2003, a 23% increase over 2002, and diluted net earnings9642per share were $0.91 in 2003, a 22% increase over 2002. Our 2004 net earnings9643included $20.5 million of special charges and purchased in-process research and9644development charges, or $0.06 per diluted share.96459646STOCK SPLITS9647On October 11, 2004 and May 16, 2002, our Board of Directors declared9648two-for-one stock splits effected in the form of 100% stock dividends to9649shareholders of record on November 1, 2004 and June 10, 2002, respectively. Net9650earnings per share, shares outstanding and weighted average shares outstanding9651have been restated to reflect these stock splits.96529653GOVERNMENT REGULATION, COMPETITION AND OTHER CONSIDERATIONS9654We expect that market demand, government regulation and reimbursement policies,9655and societal pressures will continue to change the worldwide healthcare industry9656resulting in further business consolidations and alliances. We participate with9657industry groups to promote the use of advanced medical device technology in a9658cost-conscious environment.96599660The global medical technology industry is highly competitive and is9661characterized by rapid product development and technological change. Our9662products must continually improve technologically and provide improved clinical9663outcomes due to the competitive nature of the industry. In addition, competitors9664have historically employed litigation to gain a competitive advantage.96659666The pacemaker and ICD markets are highly competitive. There are currently three9667principal suppliers to these markets, including St. Jude Medical, and our two9668principal competitors each have substantially more assets and sales than us.9669Rapid technological change in these markets is expected to continue, requiring9670us to invest heavily in R&D and to effectively market our products. Two trends9671began to emerge in these markets during 2002. The first involved a shift of some9672traditional pacemaker patients to ICD devices in the United States, and the9673second involved the increasing use of resynchronization devices in both the U.S.9674ICD and pacemaker markets. Our competitors in CRM have had approved9675resynchronization devices in the U.S. markets during this period. We obtained9676U.S. regulatory approval967796789679179680<PAGE>968196829683to market our resynchronization devices in the second quarter of 2004. A large9684portion of our sales growth in CRM products in the near term is dependent on9685market acceptance of our resynchronization devices.96869687The cardiac surgery markets, which include mechanical heart valves, tissue heart9688valves and valve repair products, are also highly competitive. Since 1999,9689cardiac surgery therapies have shifted to tissue valves and repair products from9690mechanical heart valves, resulting in an overall market share loss for us.9691Competition is anticipated to continue to place pressure on pricing and terms,9692including a trend toward vendor-owned (consignment) inventory at the hospitals.9693Also, healthcare reform is expected to result in further hospital consolidations9694over time with related pressure on pricing and terms.96959696The cardiology and vascular access therapy area is also growing and has numerous9697competitors. Over 70% of our sales in this area are comprised of vascular9698closure devices. The market for vascular closure devices is highly competitive,9699and there are several companies, in addition to St. Jude Medical, that9700manufacture and market these products worldwide. Additionally, we anticipate9701other large companies will enter this market in the coming years, which will9702likely increase competition.97039704We operate in an industry that is susceptible to significant product liability9705claims. These claims may be brought by individuals seeking relief for themselves9706or, increasingly, by groups seeking to represent a class. In addition, product9707liability claims may be asserted against us in the future relative to events9708that are not known to us at the present time. Our product liability insurance9709coverage for the period April 1, 2004 through April 1, 2005 is $425 million,9710with a $75 million deductible per occurrence. In light of our significant9711self-insured retention, our product liability insurance coverage is designed to9712help protect against a catastrophic claim.97139714Group purchasing organizations, independent delivery networks and large9715single accounts, such as the Veterans Administration in the United States,9716continue to consolidate purchasing decisions for some of our hospital customers.9717We have contracts in place with many of these organizations. In some9718circumstances, our inability to obtain a contract with such an organization9719could adversely affect our efforts to sell our products to that organization's9720hospitals.97219722MARKET RISK9723We are exposed to foreign currency exchange rate fluctuations due to9724transactions denominated primarily in Euros, Japanese Yen, Canadian Dollars,9725Brazilian Reals, British Pounds, and Swedish Kronor. Although we elected not to9726enter into any hedging contracts during 2004, 2003 or 2002, historically we9727have, from time to time, hedged a portion of our foreign currency exchange rate9728risk through the use of forward exchange or option contracts. The gains or9729losses on these contracts are intended to offset changes in the fair value of9730the anticipated foreign currency transactions. We do not enter into contracts9731for trading or speculative purposes. We continue to evaluate our foreign9732currency exchange rate risk and the different mechanisms for use in managing9733such risk. We had no forward exchange or option contracts outstanding at9734December 31, 2004 or 2003. A hypothetical 10% change in the value of the U.S.9735dollar in relation to our most significant foreign currency exposures would have9736had an impact of approximately $92.0 million on our 2004 net sales. This amount9737is not indicative of the hypothetical net earnings impact due to partially9738offsetting impacts on cost of sales and operating expenses.97399740With our acquisition of Getz Japan during 2003, we significantly increased our9741exposure to foreign currency exchange rate fluctuations due to transactions9742denominated in Japanese Yen. We elected to naturally hedge a portion of our9743Yen-denominated net asset exposure by issuing 1.02% Yen-974497459746189747<PAGE>974897499750denominated 7-year notes, the proceeds of which were used to repay the9751short-term bank debt that we used to fund a portion of the Getz Japan purchase9752price. Excess cash flows from our Getz Japan operations will be used to fund9753principal and interest payments on the Yen-denominated borrowings. We have not9754entered into any Yen-denominated hedging contracts to mitigate any remaining9755foreign currency exchange rate risk. We are also exposed to fair value risk on9756our 1.02% Yen-denominated fixed-rate notes. A hypothetical 10% change in9757interest rates would have an impact of approximately $1.1 million on the fair9758value of these notes, which is not material to our financial position or9759consolidated results of operations.97609761In the United States, we issue short-term, unsecured commercial paper that bears9762interest at varying market rates. We also have two committed credit facilities9763that have variable interest rates tied to the London InterBank Offered Rate9764(LIBOR). Our variable interest rate borrowings had a notional value of $33.99765million at December 31, 2004. A hypothetical 10% change in interest rates9766assuming the current level of borrowings would have had an impact of9767approximately $0.1 million on our 2004 interest expense, which is not material9768to our consolidated results of operations.97699770We are also exposed to equity market risk on our marketable equity security9771investments. We hold certain marketable equity securities of emerging technology9772companies. Our investments in these companies had a fair value of $34.4 million9773and $23.7 million at December 31, 2004 and 2003, which are subject to the9774underlying price risk of the public equity markets.97759776NEW ACCOUNTING PRONOUNCEMENTS97779778In December 2004, the Financial Accounting Standards Board (FASB) issued FASB9779Statement No. 123(R), SHARE-BASED PAYMENT, which is a revision of FASB Statement9780No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. Statement 123(R) supersedes9781APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and amends FASB9782Statement No. 95, STATEMENT OF CASH FLOWS. Generally, the approach in Statement9783123(R) is similar to the approach described in Statement 123. However, Statement9784123(R) REQUIRES all share-based payments to employees, including grants of9785employee stock options, to be recognized in the income statement based on their9786fair values. Pro forma disclosure is no longer an alternative.97879788Statement 123(R) must be adopted no later than July 1, 2005. We expect to adopt9789Statement 123(R) on July 1, 2005. Statement 123(R) permits public companies to9790adopt its requirements using one of two methods. We plan to adopt Statement9791123(R) using the modified-prospective method. The "modified prospective" method9792is a method in which compensation cost is recognized beginning with the9793effective date (a) based on the requirements of Statement 123(R) for all9794share-based payments granted after the effective date and (b) based on the9795requirements of Statement 123 for all awards granted to employees prior to the9796effective date of Statement 123(R) that remain unvested on the effective date.97979798As permitted by Statement 123, we currently account for share-based payments to9799employees using Opinion 25's intrinsic value method and, as such, generally9800recognize no compensation cost for employee stock options.9801Accordingly, the adoption of Statement 123(R)'s fair value method will have a9802significant impact on our consolidated results of operations, although it will9803have no impact on our overall financial position. The impact of adopting9804Statement 123(R) on future period earnings cannot be predicted at this time9805because it will depend on levels of share-based payments granted in the future.9806However, had we adopted Statement 123(R) in prior periods, the impact of that9807standard would have approximated the impact of Statement 123 as described in the9808disclosure of pro forma net income and earnings per share.980998109811199812<PAGE>98139814In December 2004, the FASB issued two FASB staff positions (FSP): FSP FAS9815109-1, "APPLICATION OF FASB STATEMENT NO. 109, ACCOUNTING FOR INCOME TAXES, FOR9816THE TAX DEDUCTION PROVIDED TO U.S.-BASED MANUFACTURERS BY THE AMERICAN JOBS9817CREATION ACT OF 2004"; and FSP FAS 109-2,"ACCOUNTING AND DISCLOSURE GUIDANCE FOR9818THE FOREIGN EARNINGS REPATRIATION PROVISION WITHIN THE AMERICAN JOBS CREATION9819ACT OF 2004." FSP FAS 109-1 clarifies that the tax deduction for domestic9820manufacturers under the American Jobs Creation Act of 2004 (the Act) should be9821accounted for as a special deduction in accordance with SFAS No. 109,9822"ACCOUNTING FOR INCOME TAXES." FAS 109-2 provides enterprises more time (beyond9823the financial-reporting period during which the Act took effect) to evaluate the9824Act's impact on the enterprise's plan for reinvestment or repatriation of9825certain foreign earnings for purposes of applying SFAS No. 109. Based on these9826requirements, we have approximately $500 million of cash held outside the United9827States, which could be eligible for the special deduction in 2005 under the Act.9828Due to the complexity of the repatriation provision, the Company is still9829evaluating the effects of the Act on our plan for repatriation of foreign9830earnings and the related impact to our tax provision. It is anticipated that9831this evaluation will be completed by the end of 2005. The range of possible9832amounts that we are currently considering for repatriation is between zero and9833$500 million. The related potential range of income tax is between zero and9834$26.0 million.98359836FINANCIAL CONDITION98379838LIQUIDITY AND CAPITAL RESOURCES9839Our liquidity and cash flows remained strong during 2004. Cash provided by9840operating activities was $604.3 million for 2004, up $130.0 million from 20039841due primarily to increased earnings and an increase in the tax benefit realized9842from the exercise of employee stock options. Offsetting these improvements was9843an increase in our accounts receivable and inventory levels. Accounts receivable9844increased in 2004 as the result of higher sales volumes, timing of sales and a9845higher portion of sales mix coming from international customers who9846traditionally have longer payment cycles. Our day sales outstanding increased to984794 days at December 31, 2004 from 88 days at December 31, 2003. Our increase in9848inventory was primarily the result of maintaining higher finished goods9849inventory levels to support our higher sales volumes. Our inventory, expressed9850as the number of days of cost of sales on hand, declined from 188 days at the9851end of 2003 to 176 days at the end of 2004. Our cash flow generated from9852operations in 2004 was used to further strengthen our balance sheet and fund the9853acquisitions of Epicor and IBI. Cash provided by operating activities was $474.39854million for 2003, up $57.1 million from 2002 due primarily to increased earnings9855and an increase in the tax benefit realized from the exercise of employee stock9856options. Offsetting these improvements was an increase in our finished goods9857inventory levels as a result of fourth quarter 2003 new product launches. We9858expect to use our future cash flows to fund internal development opportunities,9859reduce our debt and fund acquisitions, including the acquisition of ESI and9860Velocimed and our minority investment in ProRhythm, Inc. in January 2005.98619862At December 31, 2004, a substantial portion of our cash and cash equivalents9863were held by our non-U.S. subsidiaries. These funds are only available for use9864by our U.S. operations if they are repatriated into the United States. On9865October 22, 2004, the American Jobs Creation Act of 2004 (the Act) was signed9866into law by the President of the United States. The Act allows U.S. corporations9867a one-time deduction of 85% of certain "cash dividends" received from controlled9868foreign corporations. The deduction is available to corporations during the tax9869year that includes October 22, 2004 or in the immediately subsequent tax year.9870According to the Act, the amount of eligible dividends is limited to $5009871million or the amount described as permanently reinvested earnings outside the9872United States in the most recent audited financial statements filed with the SEC9873on or before June 30, 2003. Based on987498759876209877<PAGE>987898799880these requirements, the Company has approximately $500 million of cash held9881outside the United States, which could be eligible for the special deduction in98822005. Due to the complexity of the repatriation provision, we are evaluating the9883effects of the Act on our plan for repatriation of foreign earnings and the9884related impact to our tax provision. It is anticipated that this evaluation will9885be completed by the end of 2005.98869887COMMITMENTS AND CONTINGENCIES9888On January 12, 2005, we made an initial equity investment of $12.5 million9889pursuant to the Purchase and Option Agreement and the Merger Agreement, entered9890into with ProRhythm. Under the terms of the Purchase and Option Agreement, we9891have the option to make, or ProRhythm can require, us to make an additional9892$12.5 million equity investment through January 31, 2006 upon completion of9893specific clinical and regulatory milestones.98949895The ProRhythm Purchase and Option Agreement also provides us with the exclusive9896right, but not the obligation, through the later of 3 months after the date9897ProRhythm delivers certain clinical trial data or March 31, 2007, to acquire9898ProRhythm for $125 million in cash consideration payable to the ProRhythm9899stockholders (other than the Company) pursuant to the terms and conditions set9900forth in the merger agreement, with additional cash consideration payable to the9901ProRhythm stockholders (other than the Company) after the consummation of the9902acquisition, if ProRhythm achieves certain performance-related milestones.99039904Under the terms of the IBI purchase agreement, we are obligated to pay9905contingent consideration of up to $13.0 million to the non-St. Jude Medical9906shareholders if IBI receives approval by certain specified dates in 2005 and99072006 from the FDA of certain EP catheter ablation systems currently in9908development.99099910We also have contingent commitments to acquire various businesses involved in9911the distribution of our products that could total approximately $54 million in9912aggregate during 2004 to 2010, provided that certain contingencies are9913satisfied. The purchase prices of the individual businesses range from9914approximately $0.4 million to $5.8 million.99159916SHARE REPURCHASES9917On July 22, 2003, the Board of Directors authorized a share repurchase program9918of up to $500 million of our outstanding common stock and the establishment of a9919$500 million credit facility. On August 7, 2003, we repurchased approximately992018.5 million shares, or about five percent of our outstanding common stock, for9921$500 million under a privately-negotiated transaction with an investment bank.9922The investment bank borrowed the 18.5 million shares to complete the transaction9923and purchased replacement shares in the open market over a three month period9924which ended November 7, 2003. We entered into a related accelerated stock9925buyback contract with the same investment bank which, in return for a separate9926payment to the investment bank, included a price-protection feature. The9927price-protection feature provided that if the investment bank's per share9928purchase price of the replacement shares was lower than the initial share9929purchase price for the 18.5 million shares ($27.03), then the investment bank9930would, at our election, make a payment or deliver additional shares to us in the9931amount of the difference between the initial share purchase price and their9932replacement price, subject to a maximum amount. In addition, the9933price-protection feature provided that if the investment bank's replacement9934price was greater than the initial share purchase price, we would not be9935required to make any further payments. On November 7, 2003, the investment bank9936completed its purchase of replacement shares. The market price of our shares9937during this replacement period exceeded the initial purchase price, resulting in9938no additional exchange of consideration.993999409941219942<PAGE>994399449945On October 11, 2004, the Board of Directors authorized a share repurchase9946program of up to $300 million of our outstanding common stock. The share9947repurchases can be made through transactions in the open market and/or privately9948negotiated transactions, including the use of options, futures, swaps and9949accelerated share repurchase contracts. This authorization expires on December995031, 2006. We did not repurchase any of our common stock during 2004.99519952DEBT AND CREDIT FACILITIES9953On April 1, 2003, we borrowed 24.6 billion Japanese Yen, or approximately $2089954million, under a short-term, unsecured bank credit agreement to partially9955finance the Getz Japan acquisition. Borrowings under this agreement bore9956interest at an average rate of 0.58% per annum and were repaid in May 2003.99579958In May 2003, we issued 7-year, 1.02% unsecured notes totaling 20.9 billion Yen9959or $200.9 million at December 31, 2004. Interest payments are required on a9960semi-annual basis and the entire principal balance is due in May 2010. We also9961obtained a short-term, unsecured bank credit agreement that provided for9962borrowings of up to 3.8 billion Yen and was due in May 2004. Borrowings under9963the short-term, bank credit agreement bore interest at the floating Yen London9964InterBank Offered Rate (LIBOR) plus 0.50% per annum. The balance outstanding at9965December 31, 2003 was $12.1 million. We repaid the remaining borrowings under9966the short-term, unsecured bank credit agreement in April 2004.99679968In July 2003, we obtained a $400 million short-term revolving credit facility.9969Borrowings under this facility bore interest at an average rate of 1.73% per9970annum and were repaid in September 2003.99719972In September 2003, we obtained a $350 million unsecured revolving credit9973agreement with a consortium of lenders that expires in September 2008. This9974credit facility bears interest at the United States Dollar LIBOR plus 0.60% per9975annum, subject to adjustment in the event of a change in the Company's debt9976ratings. The credit agreement creates a $350 million unsecured revolving credit9977facility that we can draw upon for general corporate purposes or use to support9978our commercial paper program. There were no outstanding borrowings under this9979credit facility at December 31, 2004 and 2003.99809981During September 2003, we began issuing short-term, unsecured commercial paper9982with maturities up to 270 days. These commercial paper borrowings bear interest9983at varying market rates. The balance of commercial paper borrowings outstanding9984at December 31, 2004 and 2003 was $33.9 million and $157.4 million,9985respectively. The weighted average effective interest rate at December 31, 20049986and 2003 was 2.3% and 1.2%, respectively, and the weighted average original9987maturity of commercial paper outstanding was 12 and 67 days, respectively.99889989In May 2004, we obtained a 1.0 billion Yen credit facility that expires in June99902005. Borrowings under the credit facility bear interest at the floating Tokyo9991InterBank Offered Rate (TIBOR) plus 0.50% per annum. There were no outstanding9992borrowings under this credit facility at December 31, 2004.99939994In September 2004, we entered into a $400 million unsecured revolving credit9995agreement with a consortium of lenders that expires in September 2009. The9996credit agreement creates a $400 million unsecured revolving credit facility that9997we can draw upon for general corporate purposes or use to support our commercial9998paper program. This credit agreement replaced a $150 million credit agreement9999which expired in September 2004. Borrowings under the credit agreement bear10000interest at United States Dollar LIBOR plus 0.39%, or in the event over half of10001the facility is drawn on, LIBOR1000210003100042210005<PAGE>100061000710008plus 0.515%, in each case subject to adjustment in the event of a change in the10009our credit ratings. There were no outstanding borrowings under this credit10010facility at December 31, 2004.1001110012We classify all of our commercial paper borrowings as long-term on the balance10013sheet as we have the ability to repay any short-term maturity with available10014cash from our existing long-term, committed credit facilities. We continually10015review our cash flow projections and may from time to time repay a portion of10016the borrowings.1001710018Our 7-year, 1.02% notes, short-term bank credit agreement and revolving credit10019facilities contain various operating and financial covenants. Specifically, we10020must have a ratio of total debt to total capitalization not exceeding 55%, have10021a leverage ratio (defined as the ratio of total debt to EBITDA (net earnings10022before interest, income taxes, depreciation and amortization) and the ratio of10023total debt to EBIT (net earnings before interest and income taxes)) not10024exceeding 3.0 to 1.0, and an interest coverage ratio (defined as the ratio of10025EBITDA to interest expense and the ratio of EBIT to interest expense) not less10026than 3.0 to 1.0 and 3.5 to 1.0 for our 1.02% notes and revolving credit10027facilities, respectively. We also have limitations on additional liens or10028indebtedness and limitations on certain acquisitions, investments and10029dispositions of assets. However, these agreements do not include provisions for10030the termination of the agreements or acceleration of repayment due to changes in10031our credit ratings. We were in compliance with all of our debt covenants at10032December 31, 2004.1003310034We believe that our existing cash balances, available borrowings under our10035committed credit facilities of up to $750 million and future cash generated from10036operations will be sufficient to meet our working capital and capital investment10037needs over the next twelve months and in the foreseeable future thereafter.10038Should suitable investment opportunities arise, we believe that our earnings,10039cash flows and balance sheet position will permit us to obtain additional debt10040financing or equity capital, if necessary.1004110042OFF-BALANCE SHEET ARRANGEMENTS10043We have no off-balance sheet financing arrangements other than operating leases10044for various facilities and equipment as noted below in the table of contractual10045obligations and other commitments.10046100471004810049100501005110052100531005410055100561005710058100592310060<PAGE>100611006210063CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS10064Presented below is a summary of our contractual obligations and other10065commitments as of December 31, 2004 (in thousands):1006610067<TABLE>10068<CAPTION>10069PAYMENTS DUE BY PERIOD10070--------------------------------------------------------------------------10071Less than 1-3 4-5 After 510072Total 1 Year Years Years Years10073- ---------------------------------------------------------------------------------------------------------------------10074<S> <C> <C> <C> <C> <C>10075Long-term debt (1) 234,865 -- 76 33,900 200,88910076Operating leases (2) 71,909 16,006 21,599 16,579 17,72510077Purchase commitments (2)(3) 190,320 183,080 7,152 88 --10078Contingent acquisitions (2)(4) 372,173 345,639 21,714 2,120 2,70010079- ---------------------------------------------------------------------------------------------------------------------10080Total $869,267 $544,725 $ 50,541 $ 52,687 $221,31410081- ---------------------------------------------------------------------------------------------------------------------10082</TABLE>1008310084(1) LONG-TERM DEBT INCLUDES $200.9 MILLION OF LONG-TERM NOTES DUE IN MAY 201010085AND $33.9 MILLION OF COMMERCIAL PAPER BORROWINGS THAT ARE BACKED BY OUR10086COMMITTED CREDIT FACILITIES THAT EXPIRE IN SEPTEMBER 2008 AND 2009. WE MAY10087REPAY THE COMMERICAL PAPER BORROWINGS PRIOR TO THE EXPIRATION OF OUR10088LONG-TERM COMMITTED CREDIT FACILITY.1008910090(2) IN ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED10091STATES, THESE OBLIGATIONS ARE NOT RECORDED IN THE CONSOLIDATED BALANCE10092SHEET.1009310094(3) THESE AMOUNTS INCLUDE COMMITMENTS FOR INVENTORY PURCHASES AND CAPITAL10095EXPENDITURES THAT DO NOT EXCEED OUR PROJECTED REQUIREMENTS OVER THE10096RELATED TERMS AND ARE IN THE NORMAL1009710098(4) THESE AMOUNTS INCLUDE A $25 MILLION COMMITMENT TO MAKE A PREFERRED STOCK10099INVESTMENT IN PRORHYTHM, INC IN 2005, A $280.5 MILLION COMMITMENT TO10100COMPLETE THE ACQUISITION OF ESI IN 2005, AND CONTINGENT PURCHASE10101CONSIDERATION CONSUMMATED UNDER THE IBI ACQUISITION OF $13.0 MILLION AS10102WELL AS CONTINGENT COMMITMENTS TO ACQUIRE VARIOUS BUSINESS INVOLVED IN THE10103DISTRIBUTION OF OUR PRODUCTS. WHILE IT IS NOT CERTAIN IF AND/OR WHEN THESE10104PAYMENTS WILL BE MADE, WE HAVE INCLUDED THE PAYMENTS IN THE TABLE BASED ON10105OUR ESTIMATE OF THE EARLIEST DATE WHEN THE MILESTONE OR CONTINGENCIES MAY10106BE MET.1010710108DIVIDENDS10109We did not declare or pay any cash dividends during 2004, 2003 or 2002. We10110currently intend to utilize our earnings for operating and investment purposes.1011110112CAUTIONARY STATEMENTS10113In this discussion and in other written or oral statements made from time to10114time, we have included and may include statements that may constitute10115"forward-looking statements" within the meaning of the safe harbor provisions of10116the Private Securities Litigation Reform Act of 1995. These forward-looking10117statements are not historical facts but instead represent our belief regarding10118future events, many of which, by their nature, are inherently uncertain and10119beyond our control. These statements relate to our future plans and objectives,10120among other things. By identifying these statements for you in this manner, we10121are alerting you to the possibility that actual results may differ, possibly10122materially, from the results indicated by these forward-looking statements. We10123undertake no obligation to update any forward-looking statements.1012410125Various factors contained in the previous discussion and those described below10126may affect our operations and results. We believe the most significant factors10127that could affect our future operations and results are set forth in the list10128below. Since it is not possible to foresee all such factors, you should not10129consider these factors to be a complete list of all risks or uncertainties.1013010131101322410133<PAGE>10134101351. Legislative or administrative reforms to the U.S. Medicare or Medicaid10136systems or similar reforms of international reimbursement systems in a10137manner that significantly reduces reimbursement for procedures using10138our medical devices or denies coverage for such procedures. Adverse10139decisions relating to our products by administrators of such systems in10140coverage or reimbursement issues.101412. Acquisition of key patents by others that have the effect of excluding10142us from market segments or require us to pay royalties.101433. Economic factors, including inflation, changes in interest rates and10144changes in foreign currency exchange rates.101454. Product introductions by competitors which have advanced technology,10146better features or lower pricing.101475. Price increases by suppliers of key components, some of which are10148sole-sourced.101496. A reduction in the number of procedures using our devices caused by cost-10150containment pressures or preferences for alternate therapies.101517. Safety, performance or efficacy concerns about our marketed products,10152many of which are expected to be implanted for many years, leading to10153recalls and/or advisories with the attendant expenses and declining10154sales.101558. Changes in laws, regulations or administrative practices affecting10156government regulation of our products, such as FDA laws and10157regulations, that increase pre-approval testing requirements for10158products or impose additional burdens on the manufacture and sale of10159medical devices.101609. Regulatory actions arising from the concern over Bovine Spongiform10161Encephalopathy (BSE), sometimes referred to as "mad cow disease", that10162have the effect of limiting the Company's ability to market products10163using collagen, such as Angio-SealTM, or that impose added costs on the10164procurement of collagen.1016510. Difficulties obtaining, or the inability to obtain, appropriate levels10166of product liability insurance.1016711. The ability of our Silzone(R) product liability insurers, especially10168Kemper, to meet their obligations to us.1016912. A serious earthquake affecting our facilities in Sunnyvale or Sylmar,10170California, or a hurricane affecting our operations in Puerto Rico.1017113. Healthcare industry consolidation leading to demands for price10172concessions or the exclusion of some suppliers from significant market10173segments.1017414. Adverse developments in litigation including product liability10175litigation, patent litigation or other intellectual property10176litigation.1017710178101791018010181101821018310184101851018610187101882510189<PAGE>101901019110192REPORT OF MANAGEMENT1019310194MANAGEMENT'S REPORT ON THE FINANCIAL STATMENTS1019510196We are responsible for the preparation, integrity and objectivity of the10197accompanying financial statements. The financial statements were prepared in10198accordance with accounting principles generally accepted in the United States10199and include amounts which reflect management's best estimates based on its10200informed judgment and consideration given to materiality. We are also10201responsible for the accuracy of the related data in the annual report and its10202consistency with the financial statements.1020310204EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES1020510206We have established disclosure controls and procedures to ensure that material10207information relating to the Company, including its consolidated subsidiaries, is10208made known to the officers who certify the Company's financial reports and to10209other members of senior management and the Board of Directors.1021010211Based on their evaluation as of December 31, 2004, the Chief Executive Officer10212(CEO) and the Chief Financial Officer (CFO) of the Company have concluded that10213the Company's disclosure controls and procedures (as defined in Rules 13a-15(e)10214and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure10215that the information required to be disclosed by the Company in the reports that10216it files or submits under the Securities Exchange Act of 1934 is recorded,10217processed, summarized and reported within the time periods specified in SEC10218rules and forms.1021910220MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING1022110222Our management is responsible for establishing and maintaining adequate internal10223control over financial reporting, as such term is defined in Exchange Act Rules1022413a-15(f). Under the supervision and with the participation of the Company's10225management, including the CEO and the CFO, we conducted an evaluation of the10226effectiveness of our internal control over financial reporting based on the10227framework in Internal Control - Integrated Framework issued by the Committee of10228Sponsoring Organizations of the Treadway Commission. Based on our evaluation10229under the framework in Internal Control - Integrated Framework, the CEO and CFO10230concluded that our internal control over financial reporting was effective as of10231December 31, 2004. Our management's assessment of the effectiveness of our10232internal control over financial reporting as of December 31, 2004 has been10233audited by Ernst & Young LLP, an independent registered public accounting firm,10234as stated in their report which is included herein.1023510236AUDIT COMMITTEE OVERSIGHT1023710238The adequacy of our internal accounting controls, the accounting principles10239employed in our financial reporting and the scope of independent and internal10240audits are reviewed by the Audit Committee of the Board of Directors, consisting10241solely of outside directors. The independent auditors meet with, and have10242confidential access to, the Audit Committee to discuss the results of their10243audit work.1024410245102461024710248/s/ DANIEL J. STARKS10249- -----------------------------------------------------10250Daniel J. Starks10251Chairman, President and Chief Executive Officer1025210253102541025510256/s/ JOHN C. HEINMILLER10257- -----------------------------------------------------10258John C. Heinmiller10259Executive Vice President and Chief Financial Officer1026010261102622610263<PAGE>102641026510266REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM102671026810269BOARD OF DIRECTORS AND SHAREHOLDERS OF ST. JUDE MEDICAL, INC.102701027110272We have audited management's assessment, included in the section of the10273accompanying Report of Management entitled Management's Report on Internal10274Control Over Financial Reporting, that St. Jude Medical, Inc. and subsidiaries10275maintained effective internal control over financial reporting as of December1027631, 2004, based on criteria established in Internal Control--Integrated10277Framework issued by the Committee of Sponsoring Organizations of the Treadway10278Commission (the COSO criteria). St. Jude Medical, Inc.'s management is10279responsible for maintaining effective internal control over financial reporting10280and for its assessment of the effectiveness of internal control over financial10281reporting. Our responsibility is to express an opinion on management's10282assessment and an opinion on the effectiveness of the company's internal control10283over financial reporting based on our audit.1028410285We conducted our audit in accordance with the standards of the Public Company10286Accounting Oversight Board (United States). Those standards require that we plan10287and perform the audit to obtain reasonable assurance about whether effective10288internal control over financial reporting was maintained in all material10289respects. Our audit included obtaining an understanding of internal control over10290financial reporting, evaluating management's assessment, testing and evaluating10291the design and operating effectiveness of internal control, and performing such10292other procedures as we considered necessary in the circumstances. We believe10293that our audit provides a reasonable basis for our opinion.1029410295A company's internal control over financial reporting is a process designed to10296provide reasonable assurance regarding the reliability of financial reporting10297and the preparation of financial statements for external purposes in accordance10298with generally accepted accounting principles. A company's internal control over10299financial reporting includes those policies and procedures that (1) pertain to10300the maintenance of records that, in reasonable detail, accurately and fairly10301reflect the transactions and dispositions of the assets of the company; (2)10302provide reasonable assurance that transactions are recorded as necessary to10303permit preparation of financial statements in accordance with generally accepted10304accounting principles, and that receipts and expenditures of the company are10305being made only in accordance with authorizations of management and directors of10306the company; and (3) provide reasonable assurance regarding prevention or timely10307detection of unauthorized acquisition, use, or disposition of the company's10308assets that could have a material effect on the financial statements.1030910310Because of its inherent limitations, internal control over financial reporting10311may not prevent or detect misstatements. Also, projections of any evaluation of10312effectiveness to future periods are subject to the risk that controls may become10313inadequate because of changes in conditions, or that the degree of compliance10314with the policies or procedures may deteriorate.1031510316In our opinion, management's assessment that St. Jude Medical, Inc. maintained10317effective internal control over financial reporting as of December 31, 2004, is10318fairly stated, in all material respects, based on the COSO criteria. Also, in10319our opinion, St. Jude Medical, Inc. maintained, in all material respects,10320effective internal control over financial reporting as of December 31, 2004,10321based on the COSO criteria.1032210323We also have audited, in accordance with the standards of the Public Company10324Accounting Oversight Board (United States), the consolidated balance sheets St.10325Jude Medical, Inc. and subsidiaries as of December 31, 2004 and 2003, and the10326related consolidated results of their operations and their cash flows for each10327of the three fiscal years in the period ended December 31, 2004 and our report10328dated February 16, 2005 expressed an unqualified opinion thereon.103291033010331/s/ ERNST & YOUNG LLP1033210333Minneapolis, Minnesota10334February 16, 20051033510336103372710338<PAGE>103391034010341REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM1034210343Board of Directors and Shareholders10344St. Jude Medical, Inc.1034510346We have audited the accompanying consolidated balance sheets of St. Jude10347Medical, Inc. and subsidiaries as of December 31, 2004 and 2003 and the related10348consolidated statements of earnings, shareholders' equity, and cash flows for10349each of the three fiscal years in the period ended December 31, 2004. These10350financial statements are the responsibility of the Company's management. Our10351responsibility is to express an opinion on these financial statements based on10352our audits.1035310354We conducted our audits in accordance with the standards of the Public Company10355Accounting Oversight Board (United States). Those standards require that we plan10356and perform the audit to obtain reasonable assurance about whether the financial10357statements are free of material misstatement. An audit includes examining, on a10358test basis, evidence supporting the amounts and disclosures in the financial10359statements. An audit also includes assessing the accounting principles used and10360significant estimates made by management, as well as evaluating the overall10361financial statement presentation. We believe that our audits provide a10362reasonable basis for our opinion.1036310364In our opinion, the financial statements referred to above present fairly, in10365all material respects, the consolidated financial position of St. Jude Medical,10366Inc. and subsidiaries at December 31, 2004 and 2003 and the consolidated results10367of their operations and their cash flows for each of the three fiscal years in10368the period ended December 31, 2004 in conformity with U.S. generally accepted10369accounting principles.1037010371We also have audited, in accordance with the standards of the Public Company10372Accounting Oversight Board (United States), the effectiveness of St. Jude10373Medical, Inc.'s internal control over financial reporting as of December 31,103742004, based on criteria established in Internal Control--Integrated Framework10375issued by the Committee of Sponsoring Organizations of the Treadway Commission10376and our report dated February 16, 2005 expressed an unqualified opinion10377thereon..103781037910380/s/ ERNST & YOUNG LLP1038110382Minneapolis, Minnesota10383February 16, 20051038410385103862810387<PAGE>103881038910390CONSOLIDATED STATEMENTS OF EARNINGS10391(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)1039210393<TABLE>10394<CAPTION>10395FISCAL YEAR ENDED DECEMBER 31, 2004 2003 200210396- -------------------------------------------------------------------------------------------------------------------------------10397<S> <C> <C> <C>10398Net sales $ 2,294,173 $ 1,932,514 $ 1,589,92910399Cost of sales:10400Cost of sales before special charges 666,977 603,091 505,94610401Special charges 12,073 -- --10402- -------------------------------------------------------------------------------------------------------------------------------10403Total cost of sales 679,050 603,091 505,94610404- -------------------------------------------------------------------------------------------------------------------------------10405Gross profit 1,615,123 1,329,423 1,083,9831040610407Selling, general and administrative expense 759,320 632,395 513,69110408Research and development expense 281,935 241,083 200,33710409Purchased in-process research and development charges 9,100 -- --10410Special charges 28,810 -- --10411- -------------------------------------------------------------------------------------------------------------------------------10412Operating profit 535,958 455,945 369,9551041310414Other income (expense) 1,234 (838) 3,40310415- -------------------------------------------------------------------------------------------------------------------------------10416Earnings before income taxes 537,192 455,107 373,3581041710418Income tax expense 127,258 118,328 97,07310419- -------------------------------------------------------------------------------------------------------------------------------10420Net earnings $ 409,934 $ 336,779 $ 276,28510421===============================================================================================================================1042210423===============================================================================================================================10424NET EARNINGS PER SHARE:10425Basic $ 1.16 $ 0.95 $ 0.7810426Diluted $ 1.10 $ 0.91 $ 0.7510427WEIGHTED AVERAGE SHARES OUTSTANDING:10428Basic 353,454 353,913 353,14010429Diluted 370,992 370,753 366,00410430===============================================================================================================================10431</TABLE>104321043310434SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.10435104361043710438104392910440<PAGE>104411044210443CONSOLIDATED BALANCE SHEETS10444(IN THOUSANDS, EXCEPT SHARE AMOUNTS)1044510446<TABLE>10447<CAPTION>10448DECEMBER 31, 2004 200310449- ----------------------------------------------------------------------------------------------------------------10450<S> <C> <C>10451ASSETS10452CURRENT ASSETS10453Cash and cash equivalents $ 688,040 $ 461,25310454Accounts receivable, less allowances for doubtful accounts 630,983 501,75910455Inventories 330,873 311,76110456Deferred income taxes 92,757 112,37610457Other 120,564 105,18810458- ----------------------------------------------------------------------------------------------------------------10459Total current assets 1,863,217 1,492,3371046010461PROPERTY, PLANT AND EQUIPMENT10462Land, buildings and improvements 155,975 145,40510463Machinery and equipment 473,486 431,83910464Diagnostic equipment 182,748 173,85110465- ----------------------------------------------------------------------------------------------------------------10466Property, plant and equipment at cost 812,209 751,09510467Less accumulated depreciation (485,228) (449,442)10468- ----------------------------------------------------------------------------------------------------------------10469Net property, plant and equipment 326,981 301,6531047010471OTHER ASSETS10472Goodwill 593,799 407,01310473Other intangible assets, net 207,096 154,40410474Other 239,654 198,07510475- ----------------------------------------------------------------------------------------------------------------10476Total other assets 1,040,549 759,49210477- ----------------------------------------------------------------------------------------------------------------10478TOTAL ASSETS $ 3,230,747 $ 2,553,48210479================================================================================================================1048010481LIABILITIES AND SHAREHOLDERS' EQUITY10482CURRENT LIABILITIES10483Short-term debt $ -- $ 12,11510484Accounts payable 135,499 128,20610485Income taxes payable 101,257 72,37610486Accrued expenses10487Employee compensation and related benefits 235,752 190,15210488Other 132,885 107,46610489- ----------------------------------------------------------------------------------------------------------------10490Total current liabilities 605,393 510,3151049110492LONG-TERM DEBT 234,865 351,8131049310494DEFERRED INCOME TAXES 56,561 89,7191049510496COMMITMENTS AND CONTINGENCIES -- --1049710498SHAREHOLDERS' EQUITY10499Preferred stock -- --10500Common stock (358,760,693 and 346,028,334 shares issued and10501outstanding at December 31, 2004 and 2003, respectively) 35,876 34,60210502Additional paid-in capital 277,147 18,32610503Retained earnings 1,951,821 1,541,88710504Accumulated other comprehensive income (loss):10505Cumulative translation adjustment 53,851 (4,246)10506Unrealized gain on available-for-sale securities 15,233 11,06610507- ----------------------------------------------------------------------------------------------------------------10508Total shareholders' equity 2,333,928 1,601,63510509- ----------------------------------------------------------------------------------------------------------------10510TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,230,747 $ 2,553,48210511================================================================================================================10512</TABLE>105131051410515SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.1051610517105181051910520105213010522<PAGE>1052310524CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY10525(IN THOUSANDS, EXCEPT SHARE AMOUNTS)1052610527<TABLE>10528<CAPTION>10529COMMON STOCK ACCUMULATED10530----------------------- ADDITIONAL OTHER TOTAL10531NUMBER OF PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'10532SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) EQUITY10533- ---------------------------------------------------------------------------------------------------------------------------------10534<S> <C> <C> <C> <C> <C> <C>10535BALANCE AT JANUARY 1, 2002 348,837,424 $ 34,884 $ 108,563 $ 1,134,909 $ (94,611) $ 1,183,74510536Comprehensive income:10537Net earnings 276,285 276,28510538Other comprehensive income:10539Unrealized loss on investments,10540net of taxes of $(3,021) (4,930) (4,930)10541Foreign currency translation10542adjustment, net of taxes of $4,291 30,393 30,39310543------------10544Other comprehensive income 25,46310545------------10546Comprehensive income 301,74810547============10548Common stock issued under stock10549plans and other, net 7,218,834 722 65,283 66,00510550Tax benefit from stock plans 25,229 25,22910551- ---------------------------------------------------------------------------------------------------------------------------------10552BALANCE AT DECEMBER 31, 2002 356,056,258 35,606 199,075 1,411,194 (69,148) 1,576,72710553Comprehensive income:10554Net earnings 336,779 336,77910555Other comprehensive income:10556Unrealized gain on investments,10557net of taxes of $4,183 6,826 6,82610558Foreign currency translation10559adjustment, net of taxes of $16,71 69,142 69,14210560------------10561Other comprehensive income 75,96810562------------10563Comprehensive income 412,74710564============10565Common stock issued under stock10566plans and other, net 8,469,166 846 88,856 89,70210567Tax benefit from stock plans 42,484 42,48410568Common stock repurchased,10569including related costs (18,497,090) (1,850) (312,089) (206,086) (520,025)10570- ---------------------------------------------------------------------------------------------------------------------------------10571BALANCE AT DECEMBER 31, 2003 346,028,334 34,602 18,326 1,541,887 6,820 1,601,63510572Comprehensive income:10573Net earnings 409,934 409,93410574Other comprehensive income:10575Unrealized gain on investments,10576net of taxes of $3,034 4,167 4,16710577Foreign currency translation10578adjustment, net of taxes of $8,270 58,097 58,09710579------------10580Other comprehensive income 62,26410581------------10582Comprehensive income 472,19810583============10584Common stock issued under stock10585plans and other, net 12,732,359 1,274 144,869 146,14310586Tax benefit from stock plans 113,952 113,95210587- ---------------------------------------------------------------------------------------------------------------------------------10588BALANCE AT DECEMBER 31, 2004 358,760,693 $ 35,876 $ 277,147 $ 1,951,821 $ 69,084 $ 2,333,92810589=================================================================================================================================10590</TABLE>1059110592SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.1059310594105951059610597105983110599<PAGE>106001060110602CONSOLIDATED STATEMENTS OF CASH FLOWS10603(IN THOUSANDS)1060410605<TABLE>10606<CAPTION>10607FISCAL YEAR ENDED DECEMBER 31 2004 2003 200210608- ---------------------------------------------------------------------------------------------------------------------------10609<S> <C> <C> <C>10610OPERATING ACTIVITIES10611Net earnings $ 409,934 $ 336,779 $ 276,28510612Adjustments to reconcile net earnings to net cash from operating10613activities:10614Depreciation 68,294 64,695 67,22410615Amortization 17,461 11,988 7,69610616Equity losses in Epicor Medical, Inc., net of income taxes 962 2,612 --10617Equity losses in Irvine Biomedical, Inc., net of income taxes 780 -- --10618Purchased in-process research and development charges 9,100 -- --10619Special charges 40,883 -- --10620Deferred income taxes (9,340) 33,146 37,69510621Changes in operating assets and liabilities, net of business10622acquisitions:10623Accounts receivable (102,405) (31,315) (39,146)10624Inventories (14,209) (17,388) 15,78410625Other current assets 164 (40,273) (8,719)10626Accounts payable and accrued expenses 25,793 52,714 48,37610627Income taxes payable 156,865 61,327 12,00510628- ---------------------------------------------------------------------------------------------------------------------------10629NET CASH PROVIDED BY OPERATING ACTIVITIES 604,282 474,285 417,2001063010631INVESTING ACTIVITIES10632Purchases of property, plant and equipment (89,468) (49,565) (62,176)10633Proceeds from sale or maturity of marketable securities -- -- 7,00010634Business acquisition payments, net of cash acquired (249,941) (230,839) (29,500)10635Minority investment in Epicor Medical, Inc. -- (15,505) --10636Other (68,399) (50,691) (31,088)10637- ---------------------------------------------------------------------------------------------------------------------------10638NET CASH USED IN INVESTING ACTIVITIES (407,808) (346,600) (115,764)1063910640FINANCING ACTIVITIES10641Proceeds from exercise of stock options and stock issued 146,143 89,702 66,00510642Common stock repurchased, including related costs -- (520,025) --10643Net (payments) / borrowings under short-term debt facilities (11,964) 9,454 --10644Issuance of long-term notes -- 173,350 --10645Borrowings under debt facilities 2,285,775 1,111,450 352,00010646Payments under debt facilities (2,409,200) (954,050) (475,128)10647===========================================================================================================================10648NET CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES 10,754 (90,119) (57,123)1064910650Effect of currency exchange rate changes on cash and cash equivalents 19,559 21,827 9,21210651- ---------------------------------------------------------------------------------------------------------------------------10652NET INCREASE IN CASH AND EQUIVALENTS 226,787 59,393 253,52510653CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 461,253 401,860 148,33510654- ---------------------------------------------------------------------------------------------------------------------------10655CASH AND CASH EQUIVALENTS AT END OF YEAR $ 688,040 $ 461,253 $ 401,86010656===========================================================================================================================1065710658SUPPLEMENTAL CASH FLOW INFORMATION10659===========================================================================================================================10660Cash paid during the year for:10661Interest $ 5,158 $ 3,557 $ 1,47310662Income taxes 24,564 57,217 51,24310663===========================================================================================================================10664</TABLE>106651066610667SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.1066810669106701067110672106733210674<PAGE>106751067610677NOTES TO CONSOLIDATED FINANCIAL STATEMENTS106781067910680NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES1068110682COMPANY OVERVIEW: St. Jude Medical, Inc. (St. Jude Medical or the Company)10683develops, manufactures and distributes cardiovascular medical devices for the10684global cardiac rhythm management (CRM), cardiac surgery (CS) and cardiology and10685vascular access (C/VA) therapy areas. The Company's principal products in each10686of these therapy areas are as follows:1068710688CRM10689o bradycardia pacemaker systems (pacemakers),10690o tachycardia implantable cardioverter defibrillator systems (ICDs), and10691o electrophysiology (EP) catheters1069210693CS10694o mechanical and tissue heart valves,10695o valve repair products, and10696o epicardial ablation systems1069710698C/VA10699o vascular closure devices,10700o angiography catheters,10701o guidewires, and10702o hemostasis introducers1070310704The Company markets and sells its products primarily through a direct sales10705force. The principal geographic markets for the Company's products are the10706United States, Europe and Japan.1070710708PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the10709accounts of the Company and its wholly owned subsidiaries. Significant10710intercompany transactions and balances have been eliminated in consolidation.10711Certain reclassifications of previously reported amounts have been made to10712conform to the current year presentation. As a result of the acquisition of the10713remaining capital stock of Epicor Medical, Inc. (Epicor) in June 2004, the10714Company, in accordance with step-acquisition accounting treatment, retroactively10715adjusted the historical financial statements to reflect the portion of Epicor's10716operating losses attributable to the Company's ownership from the date of its10717original investment until the final purchase and the Company's portion of10718in-process research and development that would have been recognized as of the10719date of the original investment. These amounts totaled $2.6 million, net of tax,10720for the year ended December 31, 2003, and were recognized in the income10721statement on the line item captioned other income (expense).1072210723FISCAL YEAR: The Company utilizes a 52/53-week fiscal year ending on the10724Saturday nearest December 31. For simplicity of presentation, the Company10725describes all periods as if the year end is December 31. Fiscal years 2004 and107262002 consisted of 52 weeks and fiscal year 2003 consisted of 53 weeks.1072710728USE OF ESTIMATES: Preparation of the Company's consolidated financial statements10729in conformity with accounting principles generally accepted in the United States10730requires management to make estimates1073110732107333310734<PAGE>107351073610737and assumptions that affect the reported amounts in the consolidated financial10738statements and accompanying notes. Actual results could differ from those10739estimates.1074010741CASH EQUIVALENTS: The Company considers highly liquid investments with an10742original maturity of three months or less to be cash equivalents. Cash10743equivalents are stated at cost, which approximates market. The Company's cash10744equivalents include bank certificates of deposit, money market funds and10745instruments, commercial paper investments and repurchase agreements10746collateralized by U.S. government agency securities. The Company performs10747periodic evaluations of the relative credit standing of the financial10748institutions and issuers of its cash equivalents and limits the amount of credit10749exposure with any one issuer.1075010751MARKETABLE SECURITIES: Marketable securities consist of publicly-traded equity10752securities. Marketable securities are classified as available-for-sale, recorded10753at fair market value based upon quoted market prices and are classified with10754other current assets on the balance sheet. The following table summarizes the10755Company's available-for-sale marketable securities as of December 31 (in10756thousands):10757107582004 200310759- ---------------------------------------------------------------------------10760Adjusted cost $ 9,408 $ 5,82610761Gross unrealized gains 25,048 18,46110762Gross unrealized losses -- (613)10763- ---------------------------------------------------------------------------10764Fair value $ 34,456 $ 23,67410765===========================================================================1076610767Unrealized gains and losses, net of related incomes taxes, are recorded in10768accumulated other comprehensive income (loss) in shareholders' equity. Realized10769gains and losses from the sale of marketable securities are recorded in other10770income (expense) and are computed using the specific identification method.1077110772The Company's policy for assessing recoverability of its available-for-sale10773securities is to record a charge against net earnings when the Company10774determines that a decline in the fair value of a security drops below the cost10775basis and judges that decline to be other-than-temporary. During 2004 and 2003,10776the Company recorded writedowns of $1.3 and $1.0 million, respectively, on one10777of its equity securities, which is included in other income (expense). Other10778comprehensive income reclassification adjustments for realized losses on the10779write-down of marketable securities, net of income taxes, were $0.9 million and10780$0.6 million in 2004 and 2003.1078110782ACCOUNTS RECEIVABLE: The Company grants credit to customers in the normal course10783of business, but generally does not require collateral or any other security to10784support its receivables. The Company maintains an allowance for doubtful10785accounts for potential credit losses. The allowance for doubtful accounts was10786$31.3 million at December 31, 2004 and $31.9 million at December 31, 2003.1078710788INVENTORIES: Inventories are stated at the lower of cost or market with cost10789determined using the first-in, first-out method.1079010791107923410793<PAGE>107941079510796Inventories consist of the following at December 31 (in thousands):10797107982004 200310799- ------------------------------------------------------------------10800Finished goods $ 237,574 $ 209,23610801Work in process 33,984 32,54710802Raw materials 59,315 69,97810803- ------------------------------------------------------------------10804$ 330,873 $ 311,76110805==================================================================1080610807PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are recorded at10808cost and are depreciated using the straight-line method over their estimated10809useful lives, ranging from 15 to 39 years for buildings and improvements, three10810to seven years for machinery and equipment and five to eight years for10811diagnostic equipment. Diagnostic equipment primarily consists of programmers10812that are used by physicians and healthcare professionals to program and analyze10813data from pacemaker and ICD devices. The estimated useful lives of this10814equipment are based on management's estimates of its usage by the physicians and10815healthcare professionals, factoring in new technology platforms and rollouts by10816the Company. To the extent that the Company experiences changes in the usage of10817this equipment or introductions of new technologies to the market, the estimated10818useful lives of this equipment may change in a future period. Diagnostic10819equipment had a net carrying value of $85.8 million and $68.7 million at10820December 31, 2004 and 2003. Accelerated depreciation methods are used for income10821tax purposes.1082210823GOODWILL AND OTHER INTANGIBLE ASSETS: Goodwill represents the excess of cost10824over the fair value of identifiable net assets of businesses acquired. Other10825intangible assets consist of customer lists and relationships, purchased10826technology and patents, distribution agreements and licenses and are amortized10827on a straight-line basis using lives ranging from 10 to 20 years. Other10828intangible assets also consist of trademarks which are an indefinite lived10829intangible asset.1083010831Statement of Financial Accounting Standards (SFAS) No. 142, "GOODWILL AND OTHER10832INTANGIBLE ASSETS" (Statement 142), requires that goodwill for each reporting10833unit be reviewed for impairment at least annually. The Company has three10834reporting units at December 31, 2004, consisting of its three operating segments10835(see Note 11). The Company tests goodwill for impairment using the two-step10836process prescribed in Statement 142. In the first step, the Company compares the10837fair value of each reporting unit, as computed primarily by present value cash10838flow calculations, to its book carrying value, including goodwill. If the fair10839value exceeds the carrying value, no further work is required and no impairment10840loss is recognized. If the carrying value exceeds the fair value, the goodwill10841of the reporting unit is potentially impaired and the Company would then10842complete step 2 in order to measure the impairment loss. In step 2, the Company10843would calculate the implied fair value of goodwill by deducting the fair value10844of all tangible and intangible net assets (including unrecognized intangible10845assets) of the reporting unit from the fair value of the reporting unit (as10846determined in step 1). If the implied fair value of goodwill is less than the10847carrying value of goodwill, the Company would recognize an impairment loss equal10848to the difference.1084910850Management also reviews other intangible assets for impairment at least annually10851to determine if any adverse conditions exist that would indicate impairment. If10852the carrying value of other intangible assets exceeds the undiscounted cash10853flows, the carrying value is written down to fair value in the period10854identified. Indefinite-lived intangible assets are reviewed at least annually10855for impairment by calculating the fair value of the assets and comparing with10856their carrying value. In assessing fair1085710858108593510860<PAGE>108611086210863value, management generally utilizes present value cash flow calculations using10864an appropriate risk-adjusted discount rate.1086510866During the fourth quarters of 2004 and 2003, management completed its annual10867goodwill and other intangible asset impairment reviews with no impairments to10868the carrying values identified.1086910870TECHNOLOGY LICENSE AGREEMENT: The Company has a technology license agreement10871that provides access to a significant number of patents covering a broad range10872of technology used in the Company's pacemaker and ICD systems. The agreement10873provided for payments through September 2004, at which time the Company was10874granted a fully paid-up license to the underlying patents which expire at10875various dates through the year 2014. The costs deferred under this license are10876recorded on the balance sheet in other long-term assets and are being recognized10877as an expense over the term of the underlying patents' lives.1087810879PRODUCT WARRANTIES: The Company offers a warranty on various products, the most10880significant of which relate to pacemaker and ICD systems. The Company estimates10881the costs that may be incurred under its warranties and records a liability in10882the amount of such costs at the time the product is sold. Factors that affect10883the Company's warranty liability include the number of units sold, historical10884and anticipated rates of warranty claims and cost per claim. The Company10885periodically assesses the adequacy of its recorded warranty liabilities and10886adjusts the amounts as necessary. Changes in the Company's product warranty10887liability during 2004 and 2003 were as follows (in thousands):10888108892004 200310890- ---------------------------------------------------------------------------10891Balance at beginning of year $ 15,221 $ 14,75510892Warranty expense recognized 567 3,03510893Warranty credits issued (2,553) (2,569)10894- ---------------------------------------------------------------------------10895Balance at end of year $ 13,235 $ 15,22110896===========================================================================1089710898REVENUE RECOGNITION: The Company sells its products to hospitals primarily10899through a direct sales force. In certain international markets, the Company10900sells its products through independent distributors. The Company recognizes10901revenue when persuasive evidence of a sales arrangement exists, delivery of10902goods occurs through the transfer of title and risks and rewards of ownership,10903the selling price is fixed or determinable and collectibility is reasonably10904assured. A portion of the Company's inventory is consigned at hospitals; revenue10905is recognized at the time the Company is notified that the consigned inventory10906has been used by the customer. For products that are not consigned, revenue10907recognition occurs upon shipment to the hospital or, in the case of10908distributors, when title transfers under the contract. The Company records10909estimated sales returns, discounts and rebates as a reduction of net sales in10910the same period revenue is recognized.1091110912RESEARCH AND DEVELOPMENT: Research and development costs are charged to expense10913as incurred.1091410915PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT (IPR&D): When the Company acquires10916another entity, the purchase price is allocated, as applicable, between IPR&D,10917other intangible assets, net tangible assets and goodwill. The Company's policy10918defines IPR&D as the value assigned to those projects for which the related10919products have not received regulatory approval and have no alternative future10920use. Determining the portion of the purchase price allocated to IPR&D requires10921the Company to make significant estimates. The amount of the purchase price10922allocated to IPR&D is determined by estimating the future cash flows of each10923project or technology and discounting the net cash flows back to their present10924values. The discount rate used is determined at the time of acquisition, in10925accordance1092610927109283610929<PAGE>109301093110932with accepted valuation methods, and includes consideration of the assessed risk10933of the project not being developed to commercial feasible stage.1093410935LITIGATION: The Company accrues a liability for costs related to claims,10936including future legal costs, settlements and judgments where it has assessed10937that a loss is probable and an amount can be reasonably ESTIMATED.1093810939STOCK-BASED COMPENSATION: The Company accounts for its stock-based employee10940compensation plans (see Note 6) under the recognition and measurement principles10941of APB Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO Employees," and related10942Interpretations. The Company has not adopted fair value accounting for its10943stock-based compensation arrangements with employees at December 31, 2004. The10944following table illustrates the effect on net earnings and net earnings per10945share if the Company had applied the fair value recognition provisions of SFAS10946No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION," to its stock-based employee10947compensation (in thousands, except per share amounts):1094810949<TABLE>10950<CAPTION>109512004 2003 200210952- -----------------------------------------------------------------------------------------------------------10953<S> <C> <C> <C>10954Net earnings, as reported $ 409,934 $ 336,779 $ 276,2851095510956Less: Total stock-based employee compensation10957expense determined under fair value based method10958for all awards, net of related tax effects (50,888) (38,030) (33,194)10959- -----------------------------------------------------------------------------------------------------------1096010961Pro forma net earnings $ 359,046 $ 298,749 $ 243,09110962===========================================================================================================1096310964===========================================================================================================10965Net earnings per share:10966Basic-as reported $ 1.16 $ 0.95 $ 0.7810967Basic-pro forma 1.02 0.84 0.691096810969Diluted-as reported $ 1.10 $ 0.91 $ 0.7510970Diluted-pro forma 0.98 0.81 0.6610971===========================================================================================================10972</TABLE>1097310974The weighted-average fair value of options granted and the assumptions used in10975the Black-Scholes option-pricing model are as follows:10976109772004 2003 200210978- ------------------------------------------------------------------------------10979Fair value of options granted $ 12.79 $ 10.88 $ 6.4810980Assumptions used:10981Expected life (years) 5 5 510982Risk-free rate of return 3.5% 3.2% 3.3%10983Volatility 29.0% 35.0% 35.0%10984Dividend yield 0% 0% 0%10985==============================================================================10986109871098810989109903710991<PAGE>109921099310994NET EARNINGS PER SHARE: Basic net earnings per share is computed by dividing net10995earnings by the weighted average number of outstanding common shares during the10996period, exclusive of restricted shares. Diluted net earnings per share is10997computed by dividing net earnings by the weighted average number of outstanding10998common shares and dilutive securities.1099911000The table below sets forth the computation of basic and diluted net earnings per11001share (in thousands, except per share amounts).1100211003<TABLE>11004<CAPTION>110052004 2003 200211006- ----------------------------------------------------------------------------------------------------11007<S> <C> <C> <C>11008Numerator:11009Net earnings $ 409,934 $ 336,779 $ 276,2851101011011Denominator:11012Basic-weighted average shares outstanding 353,454 353,913 353,14011013Effect of dilutive securities:11014Employee stock options 17,525 16,819 12,82011015Restricted shares 13 21 4411016- ----------------------------------------------------------------------------------------------------11017Diluted-weighted average shares outstanding 370,992 370,753 366,00411018====================================================================================================11019Basic net earnings per share $ 1.16 $ 0.95 $ 0.7811020====================================================================================================11021Diluted net earnings per share $ 1.10 $ 0.91 $ 0.7511022====================================================================================================11023</TABLE>110241102511026Diluted-weighted average shares outstanding have not been adjusted for certain11027employee stock options and awards where the effect of those securities would11028have been anti-dilutive.1102911030FOREIGN CURRENCY TRANSLATION: Sales and expenses denominated in foreign11031currencies are translated at average exchange rates in effect throughout the11032year. Assets and liabilities of foreign operations are translated at period-end11033exchange rates. Gains and losses from translation of net assets of foreign11034operations, net of related income taxes, are recorded in accumulated other11035comprehensive income. Foreign currency transaction gains and losses are included11036in other income (expense).1103711038NEW ACCOUNTING PRONOUNCEMENTS: In December 2004, the Financial Accounting11039Standards Board (FASB) issued FASB Statement No. 123(R), SHARE-BASED PAYMENT,11040which is a revision of FASB Statement No. 123, ACCOUNTING FOR STOCK-BASED11041COMPENSATION. Statement 123(R) supersedes APB Opinion No. 25, ACCOUNTING FOR11042STOCK ISSUED TO Employees, and amends FASB Statement No. 95, STATEMENT OF CASH11043FLOWS. Generally, the approach in Statement 123(R) is similar to the approach11044described in Statement 123. However, Statement 123(R) REQUIRES all share-based11045payments to employees, including grants of employee stock options, to be11046recognized in the income statement based on their fair values. Pro forma11047disclosure is no longer an alternative.1104811049Statement 123(R) must be adopted no later than July 1, 2005. We expect to adopt11050Statement 123(R) on July 1, 2005. The Company plans to adopt Statement 123(R)11051using the modified prospective method. The "modified prospective" method is a11052method in which compensation cost is recognized beginning with the effective11053date (a) based on the requirements of Statement 123(R) for all share-based11054payments granted after the effective date and (b) based on the requirements of11055Statement 123 for all awards granted to employees prior to the effective date of11056Statement 123(R) that remain unvested on the effective date.1105711058110593811060<PAGE>110611106211063As permitted by Statement 123, the Company currently accounts for share-based11064payments to employees using Opinion 25's intrinsic value method and, as such,11065generally recognizes no compensation cost for employee stock options.11066Accordingly, the adoption of Statement 123(R)'s fair value method will have a11067significant impact on our consolidated results of operations, although it will11068have no impact on our overall financial position. The impact of adopting11069Statement 123(R) on future period earnings cannot be predicted at this time11070because it will depend on levels of share-based payments granted in the future.11071However, had we adopted Statement 123(R) in prior periods, the impact of that11072standard would have approximated the impact of Statement 123 as described in the11073disclosure of pro forma net income and earnings per share.1107411075In December 2004, the FASB issued two FASB staff positions (FSP): FSP FAS11076109-1, "APPLICATION OF FASB STATEMENT NO. 109, ACCOUNTING FOR INCOME TAXES, FOR11077THE TAX DEDUCTION PROVIDED TO U.S.-BASED MANUFACTURERS BY THE AMERICAN JOBS11078CREATION ACT OF 2004"; and FSP FAS 109-2,"ACCOUNTING AND DISCLOSURE GUIDANCE FOR11079THE FOREIGN EARNINGS REPATRIATION PROVISION WITHIN THE AMERICAN JOBS CREATION11080ACT OF 2004." FSP FAS 109-1 clarifies that the tax deduction for domestic11081manufacturers under the American Jobs Creation Act of 2004 (the Act) should be11082accounted for as a special deduction in accordance with SFAS No. 109,11083"ACCOUNTING FOR INCOME TAXES." FAS 109-2 provides enterprises more time (beyond11084the financial-reporting period during which the Act took effect) to evaluate the11085Act's impact on the enterprise's plan for reinvestment or repatriation of11086certain foreign earnings for purposes of applying SFAS No. 109. Based on these11087requirements, the Company has approximately $500 million of cash held outside11088the United States which could be eligible for the special deduction in 200511089under the Act. Due to the complexity of the repatriation provision, the Company11090is still evaluating the effects of the Act on our plan for repatriation of11091foreign earnings and the related impact to our tax provision. It is anticipated11092that this evaluation will be completed by the end of 2005. The range of possible11093amounts that the Company is currently considering to be eligible for11094repatriation is between zero and $500 million. The related potential range of11095income tax is between zero and $26.0 million.1109611097NOTE 2--ACQUISITIONS AND MINORITY INVESTMENT1109811099ACQUISITIONS: On February 15, 2005, the Company announced that it signed a11100definitive agreement to acquire the business of Velocimed, for $82.5 million11101less approximately $8.5 million of cash expected to be on hand at Velocimed at11102closing plus additional contingent payments tied to revenues in excess of11103minimum future targets, and a milestone payment upon U.S. Food and Drug11104Administration (FDA) approval of the Premere(TM) patent foramen ovale closure11105system. Velocimed is a privately held company which develops and manufactures11106specialty interventional cardiology devices. The first additional contingent11107payment contemplated under the agreement would be paid in March 2007. The11108results of operations of the Velocimed business acquisition are expected to be11109included in the Company's consolidated results of operations beginning in the11110second quarter of 2005.1111111112On January 13, 2005, the Company completed its acquisition of Endocardial11113Solutions, Inc. (ESI) for $280.5 million, which includes closing costs less $8.211114million of cash acquired. ESI had been publicly traded on the NASDAQ market11115under the ticker symbol ECSI. ESI develops, manufactures, and markets the11116EnSite(R) System used for the navigation and localization of diagnostic and11117therapeutic catheters used by physician specialists to diagnose and treat11118cardiac rhythm disorders. The Company expects to record a purchased in-process11119R&D charge of approximately $12.0 million associated with the completion of this11120transaction in the first quarter of 2005. The results of operations of ESI will11121be included in the Company's consolidated results of operations beginning in the11122first quarter of 2005.1112311124111253911126<PAGE>111271112811129On October 7, 2004, the Company completed its acquisition of the remaining11130capital stock of Irvine Biomedical, Inc. (IBI), a privately held company which11131develops and sells electrophysiology (EP) catheter products used by physician11132specialists to diagnose and treat cardiac rhythm disorders. In April 2003, the11133Company had acquired a minority investment of 14% in IBI through the Company's11134acquisition of Getz Bros. Co., Ltd. (Getz Japan). The Company paid approximately11135$50.6 million to acquire the remaining 86% of IBI capital stock it did not11136already own. The Company considered the future cash flows of the business when11137it negotiated the purchase price of IBI. This amount was net of cash acquired11138from IBI as well as consideration from the exercise of IBI stock options. The11139original investment of $4.5 million was accounted for under the cost method11140until the date the remaining shares were purchased. As a result, the Company did11141not recognize any portion of IBI's losses during this period. At the date of the11142subsequent acquisition, in accordance with step-acquisition accounting11143treatment, the Company recorded a $0.8 million charge, net of tax, which11144represents the portion of IBI's losses attributable to the Company's ownership11145from the date of the purchase of Getz Japan until the final acquisition of IBI.11146This amount was not reflected retroactively to prior periods as it was not11147material. Net consideration paid for the total acquisition was $54.8 million,11148which includes closing costs less $5.9 million of cash acquired.1114911150The Company recorded a purchased in-process R&D charge of $9.1 million in the11151fourth quarter of 2004 associated with the completion of this transaction.1115211153The following table summarizes the estimated fair values of the assets acquired11154and liabilities assumed as a result of the IBI acquisition (in thousands):1115511156=========================================================================11157Current assets $ 6,69511158Goodwill 21,74511159Purchased technology 26,40011160Purchased In-Process Research and Development 9,10011161Other long-term assets 1,45211162- -------------------------------------------------------------------------11163Total assets acquired $ 65,3921116411165Deferred income taxes $ 7,58811166Current liabilities 3,85011167- -------------------------------------------------------------------------11168Total liabilities assumed $ 11,43811169- -------------------------------------------------------------------------11170Net assets acquired $ 53,95411171=========================================================================1117211173The goodwill recorded as a result of the IBI acquisition is not deductible for11174income tax purposes and was allocated entirely to the Company's Daig reportable11175segment. The Company acquired IBI to strengthen its product portfolio of11176products used to treat heart rhythm disorders. The goodwill recognized as part11177of the acquisition represents future product opportunities that did not have11178regulatory approval at the date of acquisition and is not deductible for tax11179purposes. In connection with the acquisition of IBI, the Company also recorded11180purchased technology valued at $26.4 million that has a useful life of 12 and 1411181years for developed and core technology, respectively. In addition, the purchase11182agreement provides for additional contingent purchase consideration of up to11183$13.0 million to the non-St. Jude Medical shareholders if IBI receives approval11184by certain specified dates in 2005 and 2006 from the FDA of certain EP catheter11185ablation systems currently in development. All future payments will be recorded11186as additional goodwill.1118711188111894011190<PAGE>111911119211193On June 8, 2004, the Company completed its acquisition of the remaining capital11194stock of Epicor, a company focused on developing products which use high11195intensity focused ultrasound (HIFU) to ablate cardiac tissue. In May 2003, the11196Company made an initial $15.0 million minority investment in Epicor and acquired11197an option to purchase the remaining ownership of Epicor prior to June 30, 200411198for $185.0 million. The Company considered the future cash flows of the business11199when it negotiated the purchase price of Epicor. Pursuant to the option, the11200Company paid $185.0 million in cash to acquire the remaining outstanding capital11201stock of Epicor on June 8, 2004. The original investment was accounted for under11202the cost method until the date the remaining shares were purchased. As a result,11203the Company did not recognize any portion of Epicor's losses during this period.11204At the date of the subsequent acquisition, in accordance with step-acquisition11205accounting treatment, the Company's historical financial statements were11206adjusted retroactively to reflect the portion of Epicor's operating losses11207attributable to the Company's ownership from the date of the original investment11208until the final purchase and the Company's portion of in-process research and11209development that would have been recognized as of the date of the original11210investment. These amounts totaled $3.6 million, net of tax, for the period11211described, and were recognized in the income statement on the line item11212captioned other income (expense). Net consideration paid for the total11213acquisition was $198.0 million, which includes closing costs less $2.4 million11214of cash acquired.1121511216The Company acquired Epicor to strengthen its product portfolio of products used11217to treat heart rhythm disorders. The goodwill recognized as part of the11218acquisition represents future product opportunities that did not have regulatory11219approval at the date of acquisition and is not deductible for tax purposes. The11220goodwill recognized in connection with the Epicor acquisition was allocated11221entirely to the Company's Cardiac Rhythm Management/Cardiac Surgery (CRM/CS)11222reportable segment.112231122411225112261122711228112291123011231112321123311234112351123611237112381123911240112414111242<PAGE>112431124411245The following table summarizes the estimated fair values of the assets acquired11246and liabilities assumed as a result of the Epicor acquisition (in thousands):1124711248===============================================================================11249Current assets $ 2,86711250Goodwill 159,12111251Purchased technology 21,70011252Deferred income taxes 15,08611253Other long-term assets 74311254- -------------------------------------------------------------------------------11255Total assets acquired $ 199,5171125611257Current liabilities $ 2,70711258- -------------------------------------------------------------------------------11259Total liabilities assumed $ 2,70711260- -------------------------------------------------------------------------------11261Net assets acquired $ 196,81011262===============================================================================1126311264In connection with the acquisition of Epicor, the Company recorded purchased11265technology valued at $21.7 million that has a useful life of 12 years. The11266Epicor acquisition did not provide for the payment of any contingent11267consideration.1126811269On April 1, 2003, the Company completed its acquisition of Getz Bros. Co., Ltd.11270(Getz Japan), a distributor of medical technology products in Japan and the11271Company's largest volume distributor in Japan. The Company paid 26.9 billion11272Japanese Yen in cash to acquire 100% of the outstanding common stock of Getz11273Japan. Net consideration paid was $219.2 million, which includes closing costs11274less $12.0 million of cash acquired. The Company also acquired the net assets of11275Getz Bros. & Co. (Aust.) Pty. Limited and Medtel Pty. Limited (collectively11276referred to as Getz Australia) related to the distribution of the Company's11277products in Australia for $6.2 million in cash, including closing costs.1127811279The Company acquired Getz Japan and Getz Australia (collectively referred to as11280Getz) in order to further strengthen its presence in the Japanese and Australian11281medical technology markets. The purchase price for Getz was based on the future11282cash flows of the businesses. In addition, Getz Japan had equity securities11283which traded on a Japanese stock exchange. The goodwill recognized as part of11284the Getz acquisitions relates primarily to the operating efficiencies that these11285businesses were able to achieve and the increased levels of efficiencies11286anticipated in the future as the Company expands its presence in the Japanese11287and Australian medical technology markets. The goodwill recorded in connection11288with the Getz acquisitions was allocated entirely to the Company's Cardiac11289Rhythm Management/Cardiac Surgery (CRM/CS) reportable segment.112901129111292112931129411295112961129711298112994211300<PAGE>113011130211303The following table summarizes the estimated fair values of the assets acquired11304and liabilities assumed as a result of these acquisitions (in thousands):1130511306===============================================================================11307Current assets $ 124,96111308Goodwill 67,46511309Intangible assets 64,10611310Other long-term assets 33,94511311- -------------------------------------------------------------------------------11312Total assets acquired $ 290,4771131311314Current liabilities $ 27,72411315Deferred income taxes 25,39011316- -------------------------------------------------------------------------------11317Total liabilities assumed $ 53,11411318- -------------------------------------------------------------------------------11319Net assets acquired $ 237,36311320===============================================================================1132111322The goodwill recorded as a result of these acquisitions is not deductible for11323income tax purposes.1132411325In connection with the acquisitions of Getz, the Company recorded intangible11326assets valued at $64.1 million that each have a weighted average useful life of1132710 years. Total intangible assets subject to amortization include distribution11328agreements of $44.9 million, customer lists and relationships of $9.5 million,11329and licenses and other of $5.6 million. Intangible assets not subject to11330amortization include trademarks of $4.1 million.1133111332The Getz acquisitions did not provide for the payment of any contingent11333consideration. The third-party appraisal used by the Company for purposes of the11334purchase price allocation did not include any in-process research and11335development. There are no material unresolved items relating to the purchase11336price allocation.1133711338During 2004, 2003 and 2002, the Company also acquired various businesses11339involved in the distribution of the Company's products. Aggregate consideration11340paid in cash during 2004, 2003 and 2002 was $21.8 million, $5.4 million and11341$24.5 million, respectively.1134211343In December 2002, the Company acquired the assets of a catheter business for $511344million in cash. Substantially the entire purchase price was allocated to11345technology and patents with estimated useful lives of 15 years.1134611347The results of operations of the above-mentioned business acquisitions have been11348included in the Company's consolidated results of operations since the date of11349acquisition. Pro forma results of operations have not been presented for these11350acquisitions since the effects of these business acquisitions were not material11351to the Company either individually or in aggregate.1135211353MINORITY INVESTMENT: On January 12, 2005, the Company made an initial equity11354investment of $12.5 million pursuant to the Preferred Stock Purchase and11355Acquisition Option Agreement (the Purchase and Option Agreement) and an11356Agreement and Plan of Merger (the Merger Agreement) entered into with ProRhythm,11357Inc., (ProRhythm). The initial investment equated to a 9% ownership interest and11358is accounted for under the cost method. ProRhythm is developing a HIFU11359catheter-based ablation system for the treatment of AF. Under the terms of the11360Purchase and Option Agreement, the Company has the option to make, or ProRhythm11361can require, an additional $12.5 million equity investment through January 31,113622006 upon completion of specific clinical and regulatory milestones.1136311364113654311366<PAGE>113671136811369The Purchase and Option Agreement also provides that the Company has the11370exclusive right, but not the obligation, through the later of 3 months after the11371date ProRhythm delivers certain clinical trial data or March 31, 2007 to acquire11372ProRhythm for $125 million in cash consideration payable to the ProRhythm11373stockholders (other than the Company) pursuant to the terms and conditions set11374forth in the Merger Agreement (the Merger), with additional cash consideration11375payable to the ProRhythm stockholders (other than the Company) after the11376consummation of the acquisition, if ProRhythm achieves certain11377performance-related milestones.1137811379NOTE 3--GOODWILL AND OTHER INTANGIBLE ASSETS1138011381The changes in the carrying amount of goodwill for each of the Company's11382reportable segments for the fiscal year ended December 31, 2004 are as follows11383(in thousands):1138411385<TABLE>11386<CAPTION>11387CRM/CS DAIG TOTAL11388- ----------------------------------------------------------------------------------------------------11389<S> <C> <C> <C> <C> <C>11390Balance at December 31, 2003 $ 352,144 $ 54,869 $ 407,01311391Goodwill recorded from the Epicor acquisition 159,121 -- 159,12111392Goodwill recorded from the IBI acquisition -- 21,745 21,74511393Foreign currency translation 5,440 44 5,48411394Other 436 -- 43611395- ----------------------------------------------------------------------------------------------------11396Balance at December 31, 2004 $ 517,141 $ 76,658 $ 593,79911397====================================================================================================11398</TABLE>1139911400The following table provides the gross carrying amount of other intangible11401assets and related accumulated amortization at December 31 (in thousands):1140211403<TABLE>11404<CAPTION>114052004 200311406- ----------------------------------------------------------------------------------------------------------------------11407GROSS GROSS11408CARRYING ACCUMULATED CARRYING ACCUMULATED11409AMOUNT AMORTIZATION AMOUNT AMORTIZATION11410- ----------------------------------------------------------------------------------------------------------------------11411<S> <C> <C> <C> <C>11412Amortized intangible assets:11413Purchased technology and patents $124,479 $ 26,610 $ 76,189 $ 21,25311414Distribution agreements 46,852 8,199 49,348 3,70111415Customer lists and relationships 73,873 13,590 50,511 7,27811416Licenses and other 6,921 1,300 6,679 61011417- ----------------------------------------------------------------------------------------------------------------------11418$252,125 $ 49,699 $182,727 $ 32,84211419======================================================================================================================1142011421Indefinite intangible assets:11422Trademarks $ 4,670 $ 4,51911423======================================================================================================================11424</TABLE>1142511426Amortization expense of other intangible assets was $17.5 million, $12.0 million11427and $7.7 million for the fiscal years ended December 31, 2004, 2003 and 2002,11428respectively. Estimated amortization expense for fiscal years 2005 through 200911429based on the current carrying value of other intangible assets is approximately11430$20.8 million per year.11431114321143311434114354411436<PAGE>11437114381143911440NOTE 4--DEBT1144111442The Company's long-term debt consisted of the following at December 31(in11443thousands):11444114452004 200311446- ------------------------------------------------------------------------------114471.02% Yen-denominated notes, due 2010 $ 200,889 $ 194,41311448Commercial paper borrowings 33,900 157,40011449Other 76 --11450- ------------------------------------------------------------------------------11451$ 234,865 $ 351,81311452==============================================================================1145311454On December 31, 2004, the Company had $716.1 million of available borrowings11455under existing lines of credit.1145611457On April 1, 2003, the Company borrowed 24.6 billion Japanese Yen, or11458approximately $208 million, under a short-term, unsecured bank credit agreement11459to partially finance the Getz Japan acquisition. Borrowings under this agreement11460bore interest at an average rate of 0.58% per annum and were repaid in May 2003.1146111462In May 2003, the Company issued 7-year, 1.02% unsecured notes totaling 20.911463billion Yen, or $200.9 million at December 31, 2004. Interest payments are11464required on a semi-annual basis and the entire principal balance of the 1.02%11465unsecured notes is due in May 2010. The Company also obtained a short-term,11466unsecured bank credit agreement that provided for borrowings of up to 3.811467billion Yen and was due in May 2004. Borrowings under the short-term, bank11468credit agreement bore interest at the floating Yen London InterBank Offered Rate11469(LIBOR) plus 0.50% per annum. The balance outstanding at December 31, 2003 was11470$12.1 million. The Company repaid the remaining borrowings under the short term,11471unsecured bank credit agreement in April 2004.1147211473In July 2003, the Company obtained a $400 million short-term revolving credit11474facility. Borrowings under this facility bore interest at an average rate of114751.73% per annum and were repaid in September 2003.1147611477In September 2003, the Company obtained a $350 million unsecured revolving11478credit agreement with a consortium of lenders that expires in September 2008.11479This credit facility bears interest at the United States Dollar LIBOR plus 0.60%11480per annum, subject to adjustment in the event of a change in the Company's debt11481ratings. The credit agreement creates a $350 million unsecured revolving credit11482facility that we can draw upon for general corporate purposes or use to support11483our commercial paper program. There were no outstanding borrowings under this11484credit facility at December 31, 2004 and 2003.1148511486During September 2003, the Company began issuing short-term, unsecured11487commercial paper with maturities up to 270 days. These commercial paper11488borrowings bear interest at varying market rates. The weighted average effective11489interest rate at December 31, 2004 was 2.3% and the weighted average original11490maturity of commercial paper outstanding was 12 days. The weighted average11491effective interest rate at December 31, 2003 was 1.2% and the weighted average11492original maturity of commercial paper outstanding was 67 days.1149311494In May 2004, the Company obtained a 1.0 billion Yen credit facility that expires11495in June 2005. Borrowings under the credit facility bear interest at the floating11496Tokyo InterBank Offered Rate1149711498114994511500<PAGE>115011150211503(TIBOR) plus 0.50% per annum. There were no outstanding borrowings under this11504credit facility at December 31, 2004.1150511506In September 2004, the Company entered into a $400 million unsecured revolving11507credit agreement with a consortium of lenders that expires in September 2009.11508The credit agreement creates a $400 million unsecured revolving credit facility11509that the Company can draw upon for general corporate purposes or use to support11510its commercial paper program. This credit agreement replaced a $150 million11511credit agreement which expired in September 2004. Borrowings under the credit11512agreement bear interest at United States Dollar LIBOR plus 0.39%, or in the11513event over half of the facility is drawn on, United States Dollar LIBOR plus115140.515%, in each case subject to adjustment in the event of a change in the11515Company's credit ratings. There were no outstanding borrowings under this credit11516facility at December 31, 2004.1151711518The Company classifies all of its commercial paper borrowings as long-term on11519its balance sheet as the Company has the ability to repay any short-term11520maturity with available cash from its existing long-term, committed credit11521facilities. Management continually reviews the Company's cash flow projections11522and may from time to time repay a portion of the Company's borrowings.1152311524The Company's 7-year, 1.02% notes, short-term bank credit agreement and11525revolving credit facilities contain various operating and financial covenants.11526Specifically, the Company must have a ratio of total debt to total11527capitalization not exceeding 55%, have a leverage ratio (defined as the ratio of11528total debt to EBITDA (net earnings before interest, income taxes, depreciation11529and amortization) and the ratio of total debt to EBIT (net earnings before11530interest and income taxes)) not exceeding 3.0 to 1.0, and an interest coverage11531ratio (defined as the ratio of EBITDA to interest expense and the ratio of EBIT11532to interest expense) not less than 3.0 to 1.0 and 3.5 to 1.0 for the Company's115331.02% notes and revolving credit facilities, respectively. The Company also has11534limitations on additional liens or indebtedness and limitations on certain11535acquisitions, investments and dispositions of assets. However, these agreements11536do not include provisions for the termination of the agreements or acceleration11537of repayment due to changes in the Company's credit ratings. The Company was in11538compliance with all of its debt covenants at December 31, 2004.1153911540NOTE 5--COMMITMENTS AND CONTINGENCIES1154111542LEASES: The Company leases various facilities and equipment under noncancelable11543operating lease arrangements. Future minimum lease payments under these leases11544are as follows: $16.0 million in 2005; $11.8 million in 2006; $9.8 million in115452007; $8.3 million in 2008; $8.3 million in 2009; and $17.7 million in years11546thereafter. Rent expense under all operating leases was $17.3 million, $16.511547million and $10.2 million in 2004, 2003 and 2002.1154811549SILZONE(R) LITIGATION: In July 1997, the Company began marketing mechanical11550heart valves which incorporated a Silzone(R) coating. The Company later began11551marketing heart valve repair products incorporating a Silzone(R) coating. The11552Silzone(R) coating was intended to reduce the risk of endocarditis, a bacterial11553infection affecting heart tissue, which is associated with replacement heart11554valves.1155511556In January 2000, the Company voluntarily recalled all field inventories of11557Silzone(R) devices after receiving information from a clinical study that11558patients with a Silzone(R) valve had a small, but statistically significant,11559increased incidence of explant due to paravalvular leak compared to patients in11560that clinical study with non-Silzone(R) heart valves.1156111562115634611564<PAGE>115651156611567Subsequent to the Company's voluntary recall, the Company has been sued in11568various jurisdictions and, as of February 25, 2005, has cases pending in the11569United States, Canada, the United Kingdom, Ireland and France, by some patients11570who received a Silzone(R) device. Some of these claims allege bodily injuries as11571a result of an explant or other complications, which they attribute to the11572Silzone(R) devices. Others, who have not had their device explanted, seek11573compensation for past and future costs of special monitoring they allege they11574need over and above the medical monitoring all replacement heart valve patients11575receive. Some of the lawsuits seeking the cost of monitoring have been initiated11576by patients who are asymptomatic and who have no apparent clinical injury to11577date. The Company has vigorously defended against the claims that have been11578asserted, and expects to continue to do so with respect to any remaining claims.1157911580The Company has settled a number of these Silzone(R)-related cases and others11581have been dismissed. Cases filed in the United States in federal courts have11582been consolidated in the federal district court for the district of Minnesota11583under Judge Tunheim. A number of class-action complaints have been consolidated11584into one case. Judge Tunehim ruled against the Company on the issue of11585preemption and found that the plaintiffs' causes of action were not preempted by11586the U.S. Food and Drug Act. The Company sought to appeal this ruling, but the11587appellate court determined that it would not review the ruling at this point in11588the proceedings.1158911590Certain plaintiffs have requested Judge Tunheim to allow some cases to proceed11591as class actions. In response these requests, Judge Tunheim has issued several11592rulings concerning class action certification. Although more detail is set forth11593in the orders issued by the court, the result of these rulings is that Judge11594Tunheim declined to grant class-action status to personal injury claims, but11595granted class-action status for claimants from seventeen states to proceed with11596medical monitoring claims, so long as they do not have a clinical injury. The11597court also indicated that a class action could proceed under Minnesota's11598Consumer Protection statutes.1159911600The Company requested the Eighth Circuit Court of Appeals to review Judge11601Tunheim's class certification orders. In a September 2, 2004 order, the11602appellate court indicated it would accept the appeal of Judge Tunheim's11603certification orders. The issues have now been briefed and the parties are11604awaiting a date for oral argument concerning the appeal. It is not expected that11605the appellate court would complete its review and issue a decision concerning11606the appeal of Judge Tunheim's rulings regarding class certification until11607sometime in 2006.1160811609In addition to the class-type claims, as of February 25, 2005, there are 1811610individual Silzone(R) cases pending in various federal courts where plaintiffs11611are each requesting damages ranging from $10 thousand to $120.5 million and, in11612some cases, seeking an unspecified amount. These cases are proceeding in11613accordance with the orders issued by Judge Tunheim. There are also 26 individual11614state court suits pending as of February 25, 2005 involving 34 patients. The11615complaints in these cases each request damages ranging from $50 thousand to $10011616thousand and, in some cases, seek an unspecified amount. These state court cases11617are proceeding in accordance with the orders issued by the judges in those11618matters.1161911620In addition, a lawsuit seeking a class action for all persons residing in the11621European Economic Union member jurisdictions who have had a heart valve11622replacement and/or repair procedure using a product with Silzone(R) coating has11623been filed in Minnesota state court. The complaint seeks damages in an11624unspecified amount for the class, and in excess of $50 thousand for the11625representative plaintiff individually. The complaint also seeks injunctive11626relief in the form of medical monitoring. The Company has filed motions in the11627state court seeking to have the claims dismissed. These motions1162811629116304711631<PAGE>116321163311634are presently under consideration by the judge handling this and other cases in11635Ramsey County, Minnesota.1163611637There are also four class-action cases and one individual case pending against11638the Company in Canada. In one such case in Ontario, the court certified that a11639class action may proceed involving Silzone(R) patients. The most recent decision11640on certification was issued by the Ontario court on January 16, 2004, and the11641Company's request for leave to appeal the rulings on certification was rejected.11642A second case seeking class action in Ontario has been stayed pending resolution11643of the other Ontario action, and the matter seeking class action in British11644Columbia has been relatively inactive. A court in the Province of Quebec has11645certified a class action.1164611647In the United Kingdom, one case involving one plaintiff is pending as of11648February 25, 2005. The Particulars of Claim in that case was served on December1164921, 2004. The plaintiff in this case requests damages of approximately $36511650thousand.1165111652In Ireland, one case involving one plaintiff is pending as of February 25, 2005.11653The complaint in this case was served on December 30, 2004, and seeks an11654unspecified amount in damages.1165511656In France, one case involving one plaintiff is pending as of February 25, 2005.11657It was initiated by way of an Injunctive Summons to Appear that was served on11658November 3, 2004, and requests damages in excess of 3 million Euros.1165911660The Company is not aware of any unasserted claims related to Silzone(R) devices.11661Company management believes that the final resolution of the Silzone(R) cases11662will take several years. While management reviews the claims that have been11663asserted from time to time and periodically engages in discussions about the11664resolution of claims with claimants' representatives, management cannot11665reasonably estimate at this time the time frame in which any potential11666settlements or judgments would be paid out. The Company accrues for contingent11667losses when it is probable that a loss has been incurred and the amount can be11668reasonably estimated. The Company has recorded an accrual for probable legal11669costs that it will incur to defend the various cases involving Silzone(R)11670devices, and the Company has recorded a receivable from its product liability11671insurance carriers for amounts expected to be recovered (see Note 7). The11672Company has not accrued for any amounts associated with probable settlements or11673judgments because management cannot reasonably estimate such amounts. However,11674management believes that no significant claims will ultimately be allowed to11675proceed as class actions in the United States and, therefore, that all11676settlements and judgments will be covered under the Company's remaining product11677liability insurance coverage (approximately $151.0 million at February 25,116782005), subject to the insurance companies' performance under the policies (see11679Note 7 for further discussion on the Company's insurance carriers). As such,11680management believes that any costs (the material components of which are11681settlements, judgments, legal fees and other related defense costs) not covered11682by the Company's product liability insurance policies or existing reserves will11683not have a material adverse effect on the Company's statement of financial11684position or liquidity, although such costs may be material to the Company's11685consolidated results of operations of a future period.1168611687GUIDANT 1996 PATENT LITIGATION: In November 1996, Guidant Corporation (Guidant)11688sued the Company alleging that the Company did not have a license to certain11689patents controlled by Guidant covering ICD products and alleging that the11690Company was infringing those patents. The Company's contention was that it had11691obtained a license from Guidant to the patents at issue when it acquired certain11692assets of Telectronics in November 1996. In July 2000, an arbitrator rejected11693the Company's1169411695116964811697<PAGE>116981169911700position, and in May 2001, a federal district court judge also ruled that the11701Guidant patent license with Telectronics had not transferred to the Company.1170211703Guidant's suit originally alleged infringement of four patents by the Company.11704Guidant later dismissed its claim on one patent and a court ruled that a second11705patent was invalid. This determination of invalidity was appealed by Guidant,11706and the Court of Appeals upheld the lower court's invalidity determination. In a11707jury trial involving the two remaining patents (the `288 and `472 patents), the11708jury found that these patents were valid and that the Company did not infringe11709the `288 patent. The jury also found that the Company did infringe the `47211710patent, though such infringement was not willful. The jury awarded damages of11711$140.0 million to Guidant. In post-trial rulings, however, the judge overseeing11712the jury trial ruled that the `472 patent was invalid and also was not infringed11713by the Company, thereby eliminating the $140.0 million verdict against the11714Company. The trial court also made other rulings as part of the post-trial11715order, including a ruling that the `288 patent was invalid on several grounds.1171611717In August 2002, Guidant commenced an appeal of certain of the trial judge's11718post-trial decisions pertaining to the `288 patent. Guidant did not appeal the11719trial court's finding of invalidity and non-infringement of the `472 patent. As11720part of its appeal, Guidant requested that the monetary damages awarded by the11721jury pertaining to the `472 patent ($140 million) be transferred to the `28811722patent infringement claim.1172311724On August 31, 2004, a three judge panel of the Court of Appeals for the Federal11725Circuit (CAFC) issued a ruling on Guidant's appeal of the trial court decision11726concerning the `288 patent. The CAFC reversed the decision of the trial court11727judge that the `288 patent was invalid. The court also ruled that the trial11728judge's claim construction of the `288 patent was incorrect and, therefore, the11729jury's verdict of non-infringement was set aside. The court also ruled on other11730issues that were raised by the parties. The Company's request for re-hearing of11731the matter by the panel and the entire CAFC court was rejected. The case was11732returned to the District Court in Indiana in November 2004, but the Company11733plans to request the U.S. Supreme Court to review certain aspects of the CAFC11734decision. It is not expected that the U.S. Supreme Court would rule on this11735request until sometime during the second quarter of 2005.1173611737The `288 patent expired in December 2003. Accordingly, the final outcome of the11738appeal process cannot involve an injunction precluding the Company from selling11739ICD products in the future. Sales of the Company's ICD products which Guidant11740asserts infringed the `288 patent were approximately 18% and 16% of the11741Company's consolidated net sales during the fiscal years ended December 31, 200311742and 2002, respectively.1174311744The Company has not accrued any amounts for legal settlements or judgments11745related to the Guidant 1996 patent litigation. Although the Company believes11746that the assertions and claims in these matters are without merit, potential11747losses arising from any legal settlements or judgments are possible, but not11748estimable, at this time. The range of such losses could be material to the11749operations, financial position and liquidity of the Company.1175011751GUIDANT 2004 PATENT LITIGATION: In February 2004, Guidant sued the Company in11752federal court in Delaware, alleging that the Company's Epic(TM) HF ICD,11753Atlas(R)+ HF ICD and Frontier(TM) device infringe U.S Patent No. RE 38,119E (the11754`119 patent). Guidant also sued the Company in February 2004 in federal court in11755Minnesota alleging that the Company's QuickSite(TM) 1056K pacing lead infringes11756U.S. Patent No. 5,755,766 (the `766 patent). Guidant is seeking an injunction11757against the manufacture and sale of these devices by the Company in the United11758States and compensation for1175911760117614911762<PAGE>117631176411765what it claims are infringing sales of these products up through the effective11766date of the injunction. At the end of the second quarter 2004, the Company11767received FDA approval to market these devices in the United States. The Company11768has not submitted a substantive response to Guidant's claims at this time.11769Another competitor of the Company, Medtronic, Inc., which has a license to the11770`119 patent, is contending in a separate lawsuit with Guidant that the `11911771patent is invalid.1177211773The Company has not accrued any amounts for legal settlements or judgments11774related to the Guidant 2004 patent litigation. Potential losses arising from any11775legal settlements or judgments are possible, but not estimable, at this time.11776The range of such losses could be material to the operations, financial position11777and liquidity of the Company.1177811779SYMMETRY(TM) LITIGATION: As of February 25, 2005, there are sixteen cases in the11780United States pending against the Company which allege that its Symmetry(TM)11781Bypass System Aortic Connector (Symmetry(TM) device) caused bodily injury or11782might cause bodily injury. In addition, a number of persons have made a claim11783against the Company involving the Symmetry(TM) device without filing a lawsuit.11784The first lawsuit involving the Symmetry(TM) device was filed against the11785Company on August 5, 2003, and the most recently initiated case was served upon11786the Company on September 24, 2004. Each of the complaints in these cases request11787damages ranging from $50 thousand to $100 thousand and, in some cases, seeks an11788unspecified amount. Four of the sixteen cases are seeking class-action status.11789One of the cases seeking class-action status has been dismissed but the11790dismissal is being appealed by the plaintiff. In a second case seeking class11791action status, a Magistrate Judge has recommended that the matter not proceed as11792a class-action, and the parties are presently awaiting the Court to review the11793Magistrate's decision. A third case seeking class action status has been11794indefinitely stayed by the Court, and is presently inactive. The Company11795believes that the plaintiffs in those cases seeking class-action status seek or11796will seek damages for injuries and monitoring costs.1179711798The Company's Symmetry(TM) device was cleared through a 510(K) submission to the11799FDA, and therefore, is not eligible for the defense under the doctrine of11800federal preemption that such suits are prohibited. Given the Company's11801self-insured retention levels under its product liability insurance policies,11802the Company expects that it will be solely responsible for these lawsuits,11803including any costs of defense, settlements and judgments. Company management11804believes that class-action status is not appropriate for the claims asserted11805based on the facts and case law.1180611807During the third quarter of 2004, the number of lawsuits involving the11808Symmetry(TM) device increased, and the number of persons asserting claims11809outside of litigation increased as well. With this background, the Company11810determined that it was probable that future legal fees to defend the cases will11811be incurred and the amount of such fees was reasonably estimable. As a result,11812the Company recorded a pretax charge of $21.0 million in the third quarter of118132004 to accrue these costs.1181411815No lawsuits involving the product were initiated against the Company during the11816fourth quarter of 2004, and the number of claims asserted outside of the11817litigation has been minimal since the third quarter of 2004.1181811819Potential losses arising from settlements or judgments are possible, but not11820estimable, at this time. The range of such losses could be material to the11821operations, financial position and liquidity of the Company. However, management11822believes that no significant claims will ultimately be allowed to proceed as11823class actions in the United States.1182411825118265011827<PAGE>118281182911830Management currently believes that any costs (the material components of which11831are settlements, judgments, legal fees and other related defense costs) not11832covered by its reserves will not have a material adverse effect on the Company's11833statement of financial position or liquidity, although such costs may be11834material to the Company's consolidated results of operations of a future period.1183511836OTHER LITIGATION MATTERS: The Company is involved in various other product11837liability lawsuits, claims and proceedings that arise in the ordinary course of11838business.1183911840OTHER CONTINGENCIES: The Company has the option to make, or ProRhythm can11841require an additional $12.5 million of investment in ProRhythm upon completion11842of specific clinical and regulatory milestones (see Note 2 for further11843discussion on ProRhythm). Under the terms of the IBI purchase agreement (see11844Note 2 for futher discussion on IBI) , the Company, is obligated to pay11845contingent consideration of up to $13.0 million to the non-St. Jude Medical11846shareholders if IBI receives approval by certain specified dates in 2005 and118472006 from the FDA of certain EP catheter ablation systems currently in11848development. The Company also has contingent commitments to acquire various11849businesses involved in the distribution of its products that could total11850approximately $54 million in aggregate during 2004 to 2010, provided that11851certain contingencies are satisfied. The purchase prices of the individual11852businesses range from approximately $0.4 million to $5.8 million.1185311854NOTE 6--SHAREHOLDERS' EQUITY1185511856CAPITAL STOCK: The Company has 500,000,000 authorized shares of $0.10 par value11857per share common stock. The Company also has 25,000,000 authorized shares of11858$1.00 par value per share preferred stock. The Company has designated 1,100,00011859of the authorized preferred shares as a Series B Junior Preferred Stock for its11860shareholder rights plan (see SHAREHOLDERS' RIGHTS PLAN below for further11861discussion). There were no shares of preferred stock issued or outstanding11862during 2004, 2003 or 2002.1186311864STOCK SPLITS: On October 11, 2004 and May 16, 2002, the Company's Board of11865Directors declared two-for-one stock splits effected in the forms of a 100%11866stock dividend payable on November 22, 2004 and June 28, 2002 to shareholders of11867record on November 1, 2004 and June 10, 2002, respectively. Net earnings per11868share, shares outstanding and weighted average shares outstanding have been11869restated to reflect the stock dividend.1187011871SHARE REPURCHASE: On October 11, 2004, the Company's Board of Directors11872authorized a share repurchase program of up to $300 million of the Company's11873outstanding common stock. The share repurchases can be made through transactions11874in the open market and/or privately negotiated transactions, including the use11875of options, futures, swaps and accelerated share repurchase contracts. This11876authorization expires on December 31, 2006. The Company did not repurchase any11877of its common stock during 2004.1187811879On July 22, 2003, the Company's Board of Directors authorized a share repurchase11880program of up to $500 million of the Company's outstanding common stock. On11881August 7, 2003, the Company repurchased approximately 18.5 million shares, or11882about five percent of its outstanding common stock, for $500 million under a11883privately-negotiated transaction with an investment bank. The investment bank11884borrowed the 18.5 million shares to complete the transaction and purchased11885replacement shares in the open market over a three month period which ended on11886November 7, 2003. The Company entered into a related accelerated stock buyback11887contract with the same investment bank which, in return for a separate payment11888to the investment bank, included a price-protection feature. The11889price-protection feature provided that if the investment bank's per share11890purchase price of1189111892118935111894<PAGE>118951189611897the replacement shares was lower than the initial share purchase price for the1189818.5 million shares ($27.03), then the investment bank would, at the Company's11899election, make a payment or deliver additional shares to the Company in the11900amount of the difference between the initial share purchase price and their11901replacement price, subject to a maximum amount. In addition, the11902price-protection feature provided that if the investment bank's replacement11903price was greater than the initial share purchase price, the Company would not11904be required to make any further payments.1190511906The Company recorded the cost of the shares repurchased and the payment for the11907price-protection feature, totaling $520 million, as a reduction of shareholders'11908equity on the date of share repurchase (August 7, 2003). On November 7, 2003,11909the investment bank completed its purchase of replacement shares. The market11910price of the Company's shares during this replacement period exceeded the11911initial purchase price, resulting in no additional exchange of consideration.1191211913SHAREHOLDERS' RIGHTS PLAN: The Company has a shareholder rights plan that11914entitles shareholders to purchase one-tenth of a share of Series B Junior11915Preferred Stock at a stated price, or to purchase either the Company's shares or11916shares of an acquiring entity at half their market value, upon the occurrence of11917certain events which result in a change in control, as defined by the Plan. The11918rights related to this plan expire in 2007.1191911920EMPLOYEE STOCK PURCHASE SAVINGS PLAN: The Company's employee stock purchase11921savings plan allows participating employees to purchase, through payroll11922deductions, newly issued shares of the Company's common stock at 85% of the fair11923market value at specified dates. Employees purchased 0.6 million, 0.6 million11924and 0.4 million shares in 2004, 2003 and 2002, respectively, under this plan. At11925December 31, 2004, 1.8 million shares of additional common stock were available11926for purchase under the plan.1192711928STOCK COMPENSATION PLANS: The Company's stock compensation plans provide for the11929issuance of stock-based awards, such as restricted stock or stock options, to11930directors, officers, employees and consultants. Stock option awards under these11931plans generally have an eight to ten year life, an exercise price equal to the11932fair market value on the date of grant and a four-year vesting term. Under the11933Company's current stock plans, a majority of the stock option awards have an11934eight-year life. At December 31, 2004, the Company had 5.5 million shares of11935common stock available for grant under these plans.1193611937119385211939<PAGE>119401194111942Stock option transactions under these plans during each of the three years in11943the period ended December 31, 2004 are as follows:1194411945OPTIONS WEIGHTED AVERAGE11946OUTSTANDING EXERCISE PRICE11947- ----------------------------------------------------------------------------11948Balance at January 1, 2002 57,366,004 $ 11.2311949Granted 10,082,680 17.8011950Canceled (1,432,904) 13.4511951Exercised (6,625,936) 8.3311952- ----------------------------------------------------------------------------11953Balance at December 31, 2002 59,389,844 12.6111954Granted 9,104,672 30.0211955Canceled (1,442,492) 15.7711956Exercised (7,925,730) 10.1511957- ----------------------------------------------------------------------------11958Balance at December 31, 2003 59,126,294 15.5511959Granted 5,136,877 40.8811960Canceled (2,086,285) 10.9011961Exercised (12,157,626) 19.5111962- ----------------------------------------------------------------------------11963Balance at December 31, 2004 50,019,260 $ 19.1111964============================================================================1196511966Stock options totaling 30.7 million, 32.6 million and 30.8 million were11967exercisable at December 31, 2004, 2003 and 2002, respectively.119681196911970119711197211973119741197511976119771197811979119801198111982119835311984<PAGE>119851198611987The following tables summarize information concerning currently outstanding and11988exercisable stock options at December 31, 2004:1198911990<TABLE>11991<CAPTION>11992OPTIONS OUTSTANDING11993- ------------------------------------------------------------------------------------------------------11994WEIGHTED AVERAGE11995RANGES OF NUMBER REMAINING CONTRAC- WEIGHTED AVERAGE11996EXERCISE PRICES OUSTANDING TUAL LIFE (YEARS) EXERCISE PRICE11997- ------------------------------------------------------------------------------------------------------11998<S> <C> <C> <C>11999$ 5.02 - 7.84 9,906,419 2.8 $ 7.50120007.85 - 13.80 9,860,938 4.0 12.221200113.81 - 18.25 7,890,530 5.8 17.121200218.26 - 30.42 9,811,848 5.3 19.041200330.43 - 41.84 12,549,525 7.4 35.0112004- ------------------------------------------------------------------------------------------------------1200550,019,260 5.2 $19.1112006======================================================================================================120071200812009OPTIONS EXERCISABLE12010- ------------------------------------------------------------------------------------------------------12011RANGES OF NUMBER WEIGHTED AVERAGE12012EXERCISE PRICES EXERCISABLE EXERCISE PRICE12013- ------------------------------------------------------------------------------------------------------12014$ 5.02 - 7.84 9,832,259 $ 7.50120157.85 - 13.80 9,176,688 12.331201613.81 - 18.25 3,636,708 17.141201718.26 - 30.42 6,094,015 18.691201830.43 - 41.84 1,937,177 31.0912019- ------------------------------------------------------------------------------------------------------1202030,676,847 $13.8012021======================================================================================================12022</TABLE>1202312024The Company also granted 29,024 shares of restricted common stock during the12025three years ended December 31, 2004, under the Company's stock compensation12026plans. The value of restricted stock awards as of the date of grant is charged12027to expense over the periods during which the restrictions lapse.1202812029NOTE 7--PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT AND SPECIAL CHARGES1203012031PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES1203212033IRVINE BIOMEDICAL INC.: In October 2004, the Company acquired the remaining12034capital stock of IBI (see further discussion in Note 2.) At the date of12035acquisition, $9.1 million of the purchase price was expensed for IPR&D related12036to therapeutic catheters that had not yet reached technological feasibility and12037had no future alternative use. These devices are part of an ablation system in12038which the catheters are connected to a generator which delivers radiofrequency12039or ultrasound energy through the catheter to create lesions through ablation of12040cardiac tissue. The acquisition of IBI is expected to further enhance the12041Company's portfolio of products used to treat heart rhythm disorders. The12042Company incurred $0.3 million in costs in 2004 and expects to incur an12043additional $3.4 million to bring these products to1204412045120465412047<PAGE>120481204912050commercialization in various markets. These costs are being funded by internally12051generated cash flows.12052120532004 SPECIAL CHARGES1205412055EDWARDS LIFESCIENCES CORPORATION: In December 2004, the Company settled a patent12056infringement lawsuit with Edwards LifeSciences Corporation and recorded a12057pre-tax charge of $5.5 million.1205812059SYMMETRY BYPASS SYSTEM AORTIC CONNECTOR PRODUCT LINE DISCONTINUANCE: On12060September 23, 2004, management committed the Company to a plan to discontinue12061developing, manufacturing, marketing and selling its Symmetry(TM) device. The12062decision to discontinue developing, manufacturing, marketing and selling the12063Symmetry device was primarily based on losses incurred related to the product12064over the previous three years and the prospect of ongoing operating losses,12065resulting from a decrease in the number of coronary artery bypass graft surgery12066cases and an apparent slow down in the adoption of off-pump procedures for which12067the Symmetry(TM) device was developed.1206812069In conjunction with the plan, the Company recorded a pretax charge in the third12070quarter of 2004 of $14.4 million. The charge was comprised of $4.4 million of12071inventory write-offs, $4.1 million of fixed asset write-offs, $3.6 million of12072sales returns, $1.3 million of contract termination and other costs, primarily12073related to a leased facility, and $1.0 million in workforce reduction costs.12074These activities have been completed and all payments required in connection12075with the charge are expected to be made by June 30, 2005. The portion of the12076charges that are expected to result in future cash expenditures is estimated to12077be $2.9 million. In addition, the Company expects to incur additional future12078expense for related matters totaling approximately $6.5 million in periods prior12079to 2007. A summary of the activity related to the remaining accruals for12080customer returns, contract termination, and workforce reduction costs during the12081year ended December 31, 2004 is as follows (in thousands):1208212083<TABLE>12084<CAPTION>12085CUSTOMER CONTRACT WORKFORCE12086RETURNS AND TERMINATION AND REDUCTION AND12087RELATED COSTS RELATED COSTS RELATED COSTS TOTAL12088- --------------------------------------------------------------------------------------------------------------------12089<S> <C> <C> <C> <C>12090Accrual for Product Discontinuance $ 3,600 $ 1,308 $ 1,002 $ 5,91012091Cash payments or credits issued (1,356) (1,140) (428) (2,924)12092- --------------------------------------------------------------------------------------------------------------------12093Balance at December 31, 2004 $ 2,244 $ 168 $ 574 $ 2,98612094====================================================================================================================12095</TABLE>1209612097SYMMETRY BYPASS SYSTEM AORTIC CONNECTOR LITIGATION: In addition, as discussed in12098Note 5, there are sixteen legal cases in the United States pending as of12099February 25, 2005, alleging that the Company's Symmetry(TM) device caused bodily12100injury or might cause bodily injury. Four of these matters seek class-action12101status (one of these has already been dismissed, but is now on appeal, another12102is presently stayed). There are also a number of persons who have made a claim12103against the Company involving the Symmetry(TM) device without filing a lawsuit.12104During the third quarter of 2004, the number of cases increased, and the number12105of persons asserting claims outside of litigation increased as well. With this12106background, the Company determined that it was probable that a liability for12107future legal fees to defend the cases had been incurred and the amount of such12108fees was reasonably estimable. As a result, the Company recorded a pre-tax12109charge in the third quarter of 2004 of $21.0 million to reflect this liability.12110No lawsuits involving the product were initiated against the Company during the12111fourth quarter of 2004, and the number of claims asserted outside of the12112litigation has been minimal since the third quarter of 2004.1211312114121155512116<PAGE>121171211812119SILZONE(R) SPECIAL CHARGES1212012121On January 21, 2000, the Company initiated a worldwide voluntary recall of all12122field inventories of heart valve replacement and repair products incorporating12123Silzone(R) coating on the sewing cuff fabric. The Company concluded that it12124would no longer utilize Silzone(R) coating. As a result of the voluntary recall12125and product discontinuance, the Company recorded a special charge totaling $26.112126million during the first quarter of 2000. The $26.1 million special charge12127consisted of asset write-downs ($9.5 million), legal and patient follow-up costs12128($14.4 million) and customer returns and related costs ($2.2 million).1212912130The $9.5 million of asset write-downs related to inventory write-offs associated12131with the physical scrapping of inventory with Silzone(R) coating ($8.6 million),12132and to the write-off of a prepaid license asset and related costs associated12133with the Silzone(R) coating technology ($0.9 million). The $14.4 million of12134legal and patient follow-up costs related to the Company's product liability12135insurance deductible ($3.5 million) and patient follow-up costs ($10.9 million)12136related to contractual and future monitoring activities directly related to the12137product recall and discontinuance. The $2.2 million of customer returns and12138related costs represented costs associated with the return of customer-owned12139Silzone(R) inventory.1214012141In the second quarter of 2002, the Company determined that the Silzone(R)12142reserves should be increased by $11.0 million as a result of difficulties in12143obtaining certain reimbursements from the Company's insurance carriers under its12144product liability insurance policies ($4.6 million), an increase in management's12145estimate of the costs associated with future patient follow-up as a result of12146extending the time period in which it planned to perform patient follow-up12147activities ($5.8 million) and an increase in other related costs ($0.6 million).1214812149The Company's product liability insurance coverage for Silzone(R) claims12150consists of a number of policies with different carriers. During 2002, Company12151management observed a trend where various insurance companies were not12152reimbursing the Company or outside legal counsel for a variety of costs12153incurred, which the Company believed should be paid under the product liability12154insurance policies. These insurance companies were either refusing to pay the12155claims or had delayed providing an explanation for non-payment for an extended12156period of time. Although the Company believes it has legal recourse against12157these insurance carriers for the costs they are refusing to pay, the additional12158costs the Company would need to incur to resolve these disputes may exceed the12159amount the Company would recover. As a result of these developments, the Company12160increased the Silzone(R) reserves by $4.6 million in the second quarter of 2002,12161which represented the existing disputed costs already incurred at that time plus12162the anticipated future costs where the Company expects similar resistance from12163the insurance companies on reimbursement.1216412165During the fourth quarter of 2003, the Company reclassified $15.7 million of12166receivables from the Company's insurance carriers recorded in the Silzone(R)12167special charge accrual to other current assets. This amount related to probable12168future legal costs associated with the Silzone(R) litigation.12169121701217112172121731217412175121765612177<PAGE>121781217912180A summary of the legal and monitoring costs and customer returns and related12181costs activity is as follows (in thousands):1218212183<TABLE>12184<CAPTION>12185LEGAL AND CUSTOMER12186MONITORING RETURNS AND12187COSTS RELATED COSTS TOTAL12188- -------------------------------------------------------------------------------------------------12189<S> <C> <C> <C>12190Initial expense and accrual in 2000 $ 14,397 $ 2,239 $ 16,63612191Cash payments (5,955) (2,239) (8,194)12192- -------------------------------------------------------------------------------------------------12193Balance at December 31, 2000 8,442 -- 8,4421219412195Cash payments (3,042) -- (3,042)12196- -------------------------------------------------------------------------------------------------12197Balance at December 31, 2001 5,400 -- 5,4001219812199Additional expense 10,433 567 11,00012200Cash payments (2,442) (59) (2,501)12201- -------------------------------------------------------------------------------------------------12202Balance at December 31, 2002 13,391 508 13,8991220312204Cash payments (1,206) (22) (1,228)12205Reclassification of legal accruals 15,721 - 15,72112206- -------------------------------------------------------------------------------------------------12207Balance at December 31, 2003 27,906 486 28,3921220812209Cash payments (1,471) (305) (1,776)12210- -------------------------------------------------------------------------------------------------12211Balance at December 31, 2004 $ 26,435 $ 181 $ 26,61612212=================================================================================================12213</TABLE>12214122151221612217The Company's product liability insurance for Silzone(R) claims consists of a12218number of layers, each of which is covered by one or more insurance companies.12219The Company's present layer of insurance, which is a $30 million layer of which12220approximately $11 million has been reimbursed as of February 25, 2005, is12221covered by Lumberman's Mutual Casualty Insurance, a unit of the Kemper Insurance12222Companies (collectively referred to as Kemper). Kemper's credit rating by A.M.12223Best has been downgraded to a "D" (poor). Kemper is currently in "run off,"12224which means that it is not issuing new policies and is, therefore, not12225generating any new revenue that could be used to cover claims made under12226previously-issued policies. In the event Kemper is unable to pay part or all of12227the claims directed to it, the Company believes the other insurance carriers in12228its program will take the position that the Company will be directly liable for12229any claims and costs that Kemper is unable to pay, and that insurance carriers12230at policy layers following Kemper's layer will not provide coverage for Kemper's12231layer. Kemper also provides part of the coverage for Silzone(R) claims in the12232Company's final layer of insurance ($20 million of the final $50 million layer).1223312234It is possible that Silzone(R) costs and expenses will reach the limit of one or12235both of the Kemper layers of insurance coverage, and it is possible that Kemper12236will be unable to meet its obligations to the Company. If this were to happen,12237the Company could incur a loss of up to approximately $39 million as of February1223825, 2005. The Company has not accrued for any such losses as potential losses12239are possible, but not estimable, at this time.12240122411224212243122441224512246122475712248<PAGE>122491225012251NOTE 8--OTHER INCOME (EXPENSE)1225212253Other income (expense) consists of the following (in thousands):12254122552004 2003 200212256- -------------------------------------------------------------------------------12257Equity method losses $ (2,091) $ (3,530) $ --12258Interest income 10,093 7,031 5,48112259Interest expense (4,810) (3,746) (1,754)12260Other (1,958) (593) (324)12261- -------------------------------------------------------------------------------12262Other income (expense) $ 1,234 $ (838) $ 3,40312263===============================================================================1226412265NOTE 9--INCOME TAXES1226612267The Company's earnings before income taxes were generated from its U.S. and12268international operations as follows (in thousands):12269122702004 2003 200212271- -------------------------------------------------------------------------------12272U.S. $ 327,617 $ 281,684 $ 270,59512273International 209,575 173,423 102,76312274- -------------------------------------------------------------------------------12275Earnings before income taxes $ 537,192 $ 455,107 $ 373,35812276===============================================================================1227712278Income tax expense consists of the following (in thousands):12279122802004 2003 200212281- -------------------------------------------------------------------------------12282Current:12283U.S. federal $ 96,156 $ 55,823 $ 48,45912284U.S. state and other 9,814 4,213 4,73212285International 30,628 25,146 6,18712286- -------------------------------------------------------------------------------12287Total current 136,598 85,182 59,37812288Deferred (9,340) 33,146 37,69512289- -------------------------------------------------------------------------------12290Income tax expense $ 127,258 $ 118,328 $ 97,07312291===============================================================================1229212293The tax effects of the cumulative temporary differences between the tax bases of12294assets and liabilities and their carrying amounts for financial statement12295purposes are as follows (in thousands):122961229712298122991230012301123021230312304123055812306<PAGE>12307123082004 200312309- ------------------------------------------------------------------------------12310Deferred income tax assets:12311Net operating loss carryforwards $ 22,442 $ 3,08812312Tax credit carryforwards 51,104 20,27212313Inventories 58,408 53,39512314Accrued liabilities and other -- 16,80112315- ------------------------------------------------------------------------------12316Deferred income tax assets 131,954 93,55612317- ------------------------------------------------------------------------------12318Deferred income tax liabilities:12319Unrealized gain on available-for-sale securities (9,816) (6,782)12320Property, plant and equipment (22,835) (30,955)12321Intangible assets (61,287) (33,162)12322Accrued liabilities and other (1,820) -12323- ------------------------------------------------------------------------------12324Deferred income tax liabilities (95,758) (70,899)12325- ------------------------------------------------------------------------------12326Net deferred income tax asset $ 36,196 $ 22,65712327==============================================================================1232812329The increase in the Company's current deferred income taxes during 2004 was due12330primarily to an increase in net operating loss and tax credit carryforwards from12331business acquisitions made during 2004. The change in the Company's long-term12332deferred income tax asset/liability during 2004 was due primarily to the12333acquisitions of IBI and Epicor. The Company has not recorded any valuation12334allowance for its deferred tax assets as of December 31, 2004 or 2003 as the12335Company believes that its deferred tax assets, including the net operating loss12336and tax credit carryforwards, will be fully realized based upon its estimates of12337future taxable income.1233812339A reconciliation of the U.S. federal statutory income tax rate to the Company's12340effective income tax rate is as follows (in thousands):1234112342<TABLE>12343<CAPTION>123442004 2003 200212345- ---------------------------------------------------------------------------------------------------12346<S> <C> <C> <C>12347Income tax expense at the U.S. federal12348statutory rate of 35% $ 188,017 $ 159,287 $ 130,67512349U.S. state income taxes, net of federal tax benefit 12,917 12,427 8,37812350International taxes at lower rates (40,409) (39,032) (29,972)12351Tax benefits from extraterritorial income exclusion (7,945) (7,173) (3,675)12352Research and development credits (14,031) (11,013) (9,467)12353Non-deductible purchased in-process research12354and development charges 3,185 -- --12355Finalization of tax examination (13,982) -- --12356Other (494) 3,832 1,13412357- ---------------------------------------------------------------------------------------------------12358Income tax expense $ 127,258 $ 118,328 $ 97,07312359===================================================================================================12360</TABLE>1236112362The 2004 effective income tax rate includes the reversal of approximately $14.012363million previously recorded tax expense due to the finalization of certain tax12364examinations.1236512366The Company's effective income tax rate is favorably affected by Puerto Rican12367tax exemption grants which result in Puerto Rico earnings being partially tax12368exempt through the year 2012.1236912370At December 31, 2004, the Company has $59.6 million of U.S. federal net12371operating loss carryforwards and $20.6 million of U.S. tax credit carryforwards12372that will expire from 2005 through1237312374123755912376<PAGE>1237712378123792024 if not utilized. The Company also has state net operating loss12380carryforwards of $26.4 million that will expire from 2006 through 2013 and tax12381credit carryforwards of $37.6 million that have an unlimited carryforward12382period. These amounts are subject to annual usage limitations. The Company's net12383operating loss carryforwards arose primarily from acquisitions. The Company also12384has alternative minimum tax credit carryforwards of $5.8 million that have an12385unlimited carryforward period.1238612387The Company has not recorded U.S. deferred income taxes on $733 million of its12388non-U.S. subsidiaries' undistributed earnings, because such amounts are intended12389to be reinvested outside the United States indefinitely.1239012391NOTE 10--RETIREMENT PLANS1239212393DEFINED CONTRIBUTION PLANS: The Company has a 401(k) profit sharing plan that12394provides retirement benefits to substantially all full-time U.S. employees.12395Eligible employees may contribute a percentage of their annual compensation,12396subject to Internal Revenue Service limitations, with the Company matching a12397portion of the employees' contributions. The Company also contributes a portion12398of its earnings to the plan based upon Company performance. The Company's12399matching and profit sharing contributions are at the discretion of the Company's12400Board of Directors. In addition, the Company has defined contribution programs12401for employees in certain countries outside the United States. Company12402contributions under all defined contribution plans totaled $27.7 million, $24.012403million and $18.8 million in 2004, 2003 and 2002, respectively.1240412405DEFINED BENEFIT PLANS: The Company has funded and unfunded defined benefit plans12406for employees in certain countries outside the United States. The Company had an12407accrued liability totaling $17.1 million and $16.0 million at December 31, 200412408and 2003, respectively, which approximated the actuarially calculated unfunded12409liability. The related pension expense was not material.1241012411NOTE 11--SEGMENT AND GEOGRAPHIC INFORMATION1241212413SEGMENT INFORMATION: The Company develops, manufactures and distributes12414cardiovascular medical devices for the global cardiac rhythm management (CRM),12415cardiac surgery (CS) and cardiology and vascular access (C/VA) therapy areas.12416The Company has three operating segments, Cardiac Rhythm Management (CRM),12417Cardiac Surgery (CS) and Daig, which focus on the development and manufacture of12418products for the three therapy areas. The primary products produced by each12419segment are: CRM - pacemaker and ICD systems; CS - mechanical and tissue heart12420valves; Daig - electrophysiology catheters, vascular closure devices and other12421cardiology and vascular access products. The Company has aggregated the CRM and12422CS segments into one reportable segment based primarily upon their similar12423operational and economic characteristics.1242412425The Company's reportable segments include end customer revenues from the sale of12426products they each develop and manufacture. The costs included in each of the12427reportable segments' operating results include the direct costs of the products12428sold to end customers and operating expenses managed by each of the segments.12429Certain costs of goods sold and operating expenses managed by the Company's12430selling and corporate functions are not included in segment operating profit.1243112432124336012434<PAGE>124351243612437The following table presents certain financial information about the Company's12438reportable segments (in thousands):1243912440<TABLE>12441<CAPTION>12442CRM/CS DAIG OTHER TOTAL12443- --------------------------------------------------------------------------------------------------------------12444<S> <C> <C> <C> <C>12445FISCAL YEAR ENDED DECEMBER 31, 200412446Net sales $ 1,729,862 $ 470,720 $ 93,591 $2,294,17312447Operating profit (a) 1,015,621 254,270 (733,933) 535,95812448Depreciation and12449amortization expense 39,705 9,933 36,117 85,75512450Total assets (b)(c) 877,448 156,972 2,196,327 3,230,74712451- --------------------------------------------------------------------------------------------------------------1245212453FISCAL YEAR ENDED DECEMBER 31, 200312454Net sales $ 1,499,425 $ 366,433 $ 66,656 $1,932,51412455Operating profit (a) 873,904 202,007 (619,966) 455,94512456Depreciation and12457amortization expense 29,836 8,307 38,540 76,68312458Total assets (b)(c) 639,724 147,270 1,766,488 2,553,48212459- --------------------------------------------------------------------------------------------------------------1246012461FISCAL YEAR ENDED DECEMBER 31, 200212462Net sales $ 1,305,750 $ 284,179 $ -- $1,589,92912463Operating profit (a) 713,341 149,592 (492,978) 369,95512464Depreciation and12465amortization expense 33,819 7,158 33,943 74,92012466Total assets (b)(c) 723,414 134,610 1,093,355 1,951,37912467==============================================================================================================12468</TABLE>1246912470(a) Other operating profit includes certain costs of goods sold and12471operating expense managed by the Company's selling and corporate12472functions. In fiscal year 2004, the Company recorded $40.9 million of12473special charges that are included in the Other operating profit.12474Additionally, the Company recorded $9.1 million of purchased12475in-process research and development in conjunction with the IBI12476acquisition that is included in the Daig operating profit.12477(b) Other total assets include the assets managed by the Company's selling12478and corporate functions, including end customer receivables,12479inventory, corporate cash and equivalents and deferred income taxes.12480(c) The Company does not compile expenditures for long-lived assets by12481segment and, therefore, has not included this information as it is12482impracticable to do so.1248312484Net sales by class of similar products were as follows (in thousands):1248512486NET SALES 2004 2003 200212487- -------------------------------------------------------------------------------12488Cardiac rhythm management $ 1,630,610 $ 1,365,212 $ 1,147,48912489Cardiac surgery 274,979 270,933 250,95712490Cardiology and vascular access 388,584 296,369 191,48312491- -------------------------------------------------------------------------------12492$ 2,294,173 $ 1,932,514 $ 1,589,92912493===============================================================================1249412495GEOGRAPHIC INFORMATION: The following tables present certain geographical12496financial information (in thousands):1249712498124996112500<PAGE>1250112502NET SALES (A) 2004 2003 200212503- ------------------------------------------------------------------------------12504United States $ 1,264,756 $ 1,129,055 $ 1,042,76612505International12506Europe 577,058 465,369 347,93612507Japan 267,723 207,431 95,81312508Other (B) 184,636 130,659 103,41412509- ------------------------------------------------------------------------------125101,029,417 803,459 547,16312511- ------------------------------------------------------------------------------12512$ 2,294,173 $ 1,932,514 $ 1,589,92912513==============================================================================1251412515LONG-LIVED ASSETS (C) 2004 2003 200212516- ------------------------------------------------------------------------------12517United States $ 1,042,690 $ 744,445 $ 674,11912518International12519Europe 102,172 96,520 88,19412520Japan 163,736 152,772 26712521Other 74,356 70,020 62,21312522- ------------------------------------------------------------------------------12523340,264 319,312 150,67412524- ------------------------------------------------------------------------------12525$ 1,382,954 $ 1,063,757 $ 824,79312526==============================================================================1252712528(A) NET SALES ARE ATTRIBUTED TO GEOGRAPHIES BASED ON LOCATION OF THE CUSTOMER.12529(B) NO ONE GEOGRAPHIC MARKET IS GREATER THAN 5% OF CONSOLIDATED NET SALES.12530(C) LONG-LIVED ASSETS EXCLUDE DEFERRED INCOME TAXES.1253112532NOTE 12--QUARTERLY FINANCIAL DATA (UNAUDITED)1253312534Quarterly financial data for 2004 and 2003 is as follows (in thousands, except12535per share amounts):1253612537<TABLE>12538<CAPTION>12539QUARTER12540FIRST SECOND THIRD FOURTH12541- -----------------------------------------------------------------------------------------------------------12542<S> <C> <C> <C> <C>12543FISCAL YEAR ENDED DECEMBER 31, 2004:12544Net sales $ 548,576 $ 556,602 $ 578,319 $ 610,67612545Gross profit 384,331 395,151 400,328 435,31312546Net earnings 95,154 98,843 91,178 (a) 124,759 (b)12547Basic net earnings per share 0.27 0.28 0.26 0.3512548Diluted net earnings per share $ 0.26 $ 0.27 $ 0.25 $ 0.331254912550FISCAL YEAR ENDED DECEMBER 31, 2003:12551Net sales $ 441,384 $ 495,093 $ 477,454 $ 518,58312552Gross profit 301,920 333,793 330,741 362,96912553Net earnings 79,987 80,333 84,136 92,32312554Basic net earnings per share 0.22 0.22 0.24 0.2712555Diluted net earnings per share $ 0.21 $ 0.21 $ 0.23 $ 0.2512556===========================================================================================================12557</TABLE>1255812559(a) INCLUDES SPECIAL CHARGES OF $21.9 MILLION, NET OF TAXES, RELATING TO THE12560DISCONTINUANCE OF SYMMETRY(TM) BYPASS AORTIC CONNECTOR PRODUCT LINE AND12561SYMMETRY(TM) BYPASS AORTIC CONNECTOR LITIGATION.1256212563(b) INCLUDES $9.1 MILLION CHARGE FOR PURCHASED IN PROCESS RESEARCH AND12564DEVELOPMENT IN CONJUNCTION WITH THE IRVINE BIOMEDICAL, INC. ACQUISITION, A12565SPECIAL CHARGE RELATED TO SETTLEMENT OF A PATENT INFRINGEMENT LAWSUIT WITH12566EDWARDS LIFESCIENCES CORPORATION OF $3.4 MILLION, NET OF TAXES, AND THE12567REVERSAL OF $14.0 MILLION OF PREVIOUSLY RECORDED INCOME TAX EXPENSE DUE TO12568THE FINALIZATION OF CERTAIN TAX EXAMINATIONS.1256912570125716212572<PAGE>125731257412575FIVE-YEAR SUMMARY FINANCIAL DATA12576(In thousands, except per share amounts)1257712578<TABLE>12579<CAPTION>125802004(A) 2003 2002 (B) 2001 (C) 2000 (D)12581- ---------------------------------------------------------------------------------------------------------------------------12582<S> <C> <C> <C> <C> <C>12583SUMMARY OF OPERATIONS FOR THE FISCAL YEAR:12584Net sales $ 2,294,173 $ 1,932,514 $ 1,589,929 $ 1,347,356 $ 1,178,80612585Gross profit $ 1,615,123 $ 1,329,423 $ 1,083,983 $ 888,197 $ 787,65712586Percent of net sales 70.4% 68.8% 68.2% 65.9% 66.8%12587Operating profit $ 535,958 $ 455,945 $ 369,955 $ 235,816 $ 202,35912588Percent of net sales 23.4% 23.6% 23.3% 17.5% 17.2%12589Net earnings $ 409,934 $ 336,779 $ 276,285 $ 172,592 $ 129,09412590Percent of net sales 17.9% 17.4% 17.4% 12.8% 11.0%12591Diluted net earnings per share $ 1.10 $ 0.91 $ 0.75 $ 0.49 $ 0.3812592- ---------------------------------------------------------------------------------------------------------------------------12593FINANCIAL POSITION AT YEAR END:12594Cash and equivalents $ 688,040 $ 461,253 $ 401,860 $ 148,335 $ 50,43912595Working capital (E) 1,257,824 982,022 739,665 475,692 388,32212596Total assets 3,230,747 2,553,482 1,951,379 1,628,727 1,532,71612597Long-term debt 234,865 351,813 -- 123,128 294,50012598Shareholders' equity $ 2,333,928 $ 1,601,635 $ 1,576,727 $ 1,183,745 $ 940,84912599- ---------------------------------------------------------------------------------------------------------------------------12600OTHER DATA:12601Diluted weighted average12602shares outstanding 370,992 370,753 366,004 357,534 343,26812603===========================================================================================================================12604</TABLE>1260512606FISCAL YEAR 2003 CONSISTED OF 53 WEEKS. ALL OTHER FISCAL YEARS NOTED ABOVE12607CONSISTED OF 52 WEEKS. THE COMPANY DID NOT DECLARE OR PAY ANY CASH DIVIDENDS12608DURING 2000 THROUGH 2004.1260912610(A) RESULTS FOR 2004 INCLUDE PRE-TAX $35.4 MILLION SPECIAL CHARGES RELATING TO12611THE DISCONTINUANCE OF SYMMETRY(TM) BYPASS AORTIC CONNECTOR PRODUCT LINE AND12612SYMMETRY(TM) BYPASS AORTIC CONNECTOR LITIGATION. ADDITIONALLY, THE COMPANY12613RECORDED $9.1 MILLION OF PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT IN12614CONJUNCTION WITH THE ACQUISITION OF IBI AND A PRE-TAX $5.5 MILLION CHARGE12615RESULTING FROM THE SETTLEMENT OF CERTAIN PATENT INFRINGEMENT LITIGATION.12616ALSO, THE COMPANY RECORDED THE REVERSAL OF $14.0 MILLION OF PREVIOUSLY12617RECORDED INCOME TAX EXPENSE DUE TO THE FINALIZATION OF CERTAIN TAX12618EXAMINATIONSS. THE IMPACT OF THESE ITEMS ON 2004 NET EARNINGS WAS $20.512619MILLION, OR $0.06 PER DILUTED SHARE.1262012621(B) RESULTS FOR 2002 INCLUDE A CASH RECEIPT OF $18.5 MILLION RELATING TO THE12622SETTLEMENT OF CERTAIN PATENT LITIGATION, WHICH WAS RECORDED AS A REDUCTION12623OF SG&A EXPENSE. ALSO, THE COMPANY RECORDED IN SG&A AN $11 MILLION CHARGE12624TO INCREASE THE RESERVE FOR EXPENSES RELATED TO THE SILZONE(R) RECALL AND A12625$7.5 MILLION DISCRETIONARY CONTRIBUTION TO THE COMPANY'S CHARITABLE12626FOUNDATION, THE ST. JUDE MEDICAL FOUNDATION. IN THE AGGREGATE THERE WAS NO12627IMPACT OF THESE ITEMS ON 2002 NET EARNINGS1262812629(C) RESULTS FOR 2001 INCLUDE A $32.8 MILLION SPECIAL CHARGE AND PURCHASED12630IN-PROCESS RESEARCH AND DEVELOPMENT CHARGES OF $10 MILLION. THE IMPACT OF12631THESE ITEMS ON 2001 NET EARNINGS WAS $30.5 MILLION, OR $0.17 PER DILUTED12632SHARE.1263312634(D) RESULTS FOR 2000 INCLUDE A $26.1 MILLION SPECIAL CHARGE AND A PURCHASED12635IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE OF $5 MILLION. THE IMPACT OF12636THESE ITEMS ON 2000 NET EARNINGS WAS $27.2 MILLION, OR $0.16 PER DILUTED12637SHARE.1263812639(E) TOTAL CURRENT ASSETS LESS TOTAL CURRENT LIABILITIES.12640126411264212643126446312645<PAGE>1264612647CERTIFICATIONS12648The Company has filed as exhibits to its Annual Report on Form 10-K for the year12649ended December 31, 2004, the Chief Executive Officer and Chief Financial Officer12650certifications required by section 302 of the Sarbanes-Oxley Act. The Company12651has also submitted the required annual Chief Executive Officer certifications to12652the New York Stock Exchange.1265312654TRANSFER AGENT12655Requests concerning the transfer or exchange of shares, lost stock certificates,12656duplicate mailings, or change of address should be directed to the Company's12657Transfer Agent at:1265812659EquiServe Trust Company, N.A.12660P.O. Box 4302312661Providence, Rhode Island 02940-3023126621.877.498.886112663www.equiserve.com (Account Access Availability)12664Hearing impaired #TDD: 1.800.952.9245126651266612667ANNUAL MEETING OF SHAREHOLDERS12668The annual meeting of shareholders will be held at126699:30 a.m. on Wednesday, May 11, 2005, at the Minnesota Historical Center,12670345 Kellogg Boulevard West,12671St. Paul, Minnesota, 55102. Parking is available.126721267312674INVESTOR CONTACT12675Laura C. Merriam, Director, Investor Relations1267612677To obtain information about the Company call 1.800.552.7664, visit our Web site12678at WWW.SJM.COM, or write to:1267912680Investor Relations12681St. Jude Medical, Inc.12682One Lillehei Plaza12683St. Paul, Minnesota 55117-99831268412685The Investor Relations (IR) section on St. Jude Medical's12686Web site includes all SEC filings, a list of analyst coverage, and a calendar of12687upcoming earnings announcements and IR events. St. Jude Medical's Newsroom12688features news releases, company background information, fact sheets, executive12689bios, a product photo portfolio, and other media resources. Patient profiles can12690be found on our Web site, including the patients featured in this year's annual12691report.126921269312694CORPORATE GOVERNANCE12695(SEE COMPANY INFORMATION ON WEB SITE- WWW.SJM.COM)1269612697o Principles of Corporate Governance -12698o Board Committee Charters12699o Shareholder Communications with Directors12700o Shareholder Suggestions for Director Nominees12701o Code of Business Conduct12702o SEC Filings127031270412705COMPANY STOCK SPLITS127062:1 on 4/27/79, 1/25/80, 9/30/86, 3/15/89, 4/30/90, 6/10/02 and 11/1/04;127073:2 on 11/16/95127081270912710STOCK EXCHANGE LISTINGS12711New York Stock Exchange12712Symbol: STJ1271312714The range of high and low prices per share for the Company's common stock for12715fiscal 2004 and 2003 is set forth below. As of February 14, 2005, the Company12716had 3,130 shareholders of record.127171271812719Fiscal Year Ended December 31 2004 200312720- -------------------------------------------------------------------------12721Quarter High Low High Low12722- -------------------------------------------------------------------------12723First $ 39.52 $ 29.90 $ 24.74 $ 19.3812724Second $ 39.45 $ 35.00 $ 31.80 $ 23.7512725Third $ 38.07 $ 31.13 $ 29.55 $ 24.0512726Fourth $ 42.90 $ 35.65 $ 32.00 $ 26.25127271272812729127301273112732TRADEMARKS12733Aescula(TM), AF Suppression(TM), Alliance(TM), Angio-Seal(TM),12734Apeel(TM), Atlas(R), BiLinx(TM), Biocor(TM), EnSite(R), Epic(TM),12735Epicor(TM), Fast Cath(TM), Fast Cath Duo(TM), FlexCuff(TM),12736Frontier(TM), GuideRight(TM), Housecall Plus(TM), HydraSteer(TM),12737Identity(R), Inquiry(TM), Intersept(TM), Integrity(R), IsoFlex(R),12738Linx(TM), Livewire(TM), Livewire Cannulator(TM), Livewire Spiral12739HP(TM), Livewire TC(TM), Maximum(TM), Merlin(TM), Microny(R), NavX(R),12740Optima(TM), Pacel(TM), Passive Plus(R), Photon(R), QuickSite(R),12741Reflexion(TM), Response(TM), Riata(R), Silzone(R), SJM(R),12742SJM Biocor(R), SJM Epic(TM), SJM Regent(R), SJM Tailor(R),12743St. Jude Medical(R), StasyPatch(TM), Supreme(TM), Swartz(TM),12744Symmetry(TM), Telesheath(TM), Tendril(R), Toronto Root(TM),12745Toronto SPV(R), Trio(TM), Ultimum(TM), Valsalva(TM), Vascutek(R),12746Verity(TM), Victory(TM).127471274812749(C)2005 ST. JUDE MEDICAL, INC.12750</TEXT>12751</DOCUMENT>12752<DOCUMENT>12753<TYPE>EX-2112754<SEQUENCE>612755<FILENAME>stjude051052_ex21.txt12756<TEXT>12757EXHIBIT 2112758127591276012761ST. JUDE MEDICAL, INC.1276212763SUBSIDIARIES OF THE REGISTRANT127641276512766St. Jude Medical, Inc. Wholly Owned Subsidiaries:12767- -------------------------------------------------1276812769o Pacesetter, Inc. - Sylmar, California, Scottsdale, Arizona, and Maven,12770South Carolina (Delaware corporation) (doing business as St. Jude Medical12771Cardiac Rhythm Management Division)12772o St. Jude Medical S.C., Inc. - St. Paul, Minnesota (Minnesota corporation)12773- Bio-Med Sales, Inc. (Pennsylvania corporation)12774- HeartBeat Medical, Inc. (Utah corporation)12775- Pacesetter Associates II, Inc. (Ohio corporation)12776o St. Jude Medical Europe, Inc. - St. Paul, Minnesota (Delaware corporation)12777- Brussels, Belgium branch12778o St. Jude Medical Canada, Inc. - Mississauga, Ontario and St. Hyacinthe,12779Quebec (Ontario, Canada corporation)12780o St. Jude Medical (Shanghai) Co., Ltd. - Shanghai, China (Chinese12781corporation)12782- Beijing, Shanghai and Guangzhou representative offices12783o St. Jude Medical (Hong Kong) Limited - Central, Hong Kong (Hong Kong12784corporation)12785- Beijing, China representative office12786- Korean and Taiwan branch offices12787- Mumbai, New Delhi, Calcutta, Chennai and Bangalore, India branch12788offices12789- Singapore representative office12790o St. Jude Medical, Inc., Cardiac Assist Division - St. Paul, Minnesota12791(Delaware corporation) (Assets of St. Jude Medical, Inc., Cardiac Assist12792Division sold to Bard 1/19/96)12793o St. Jude Medical Australia Pty., Ltd. - Sydney, Australia (Australian12794corporation)12795o St. Jude Medical Brasil, Ltda. - Sao Paulo and Belo Horizonte, Brazil12796(Brazilian corporation)12797o St. Jude Medical, Daig Division, Inc.- Minnetonka, Minnesota (Minnesota12798corporation)12799o St. Jude Medical Colombia, Ltda. - Bogota, Colombia (Colombian corporation)12800o St. Jude Medical ATG, Inc. - Maple Grove, Minnesota (Minnesota corporation)12801o St. Jude Medical (Thailand) Co., Ltd. - Bangkok, Thailand (Thailand12802corporation)12803o Epicor Medical, Inc. - Sunnyvale, California (Delaware corporation)12804o Irvine Biomedical, Inc. - Irvine, California (California corporation)12805o Frank Merger Corporation - (Delaware corporation)12806o SJM International, Inc. - St. Paul, Minnesota (Delaware corporation)12807- Tokyo, Japan branch12808128091281012811<PAGE>128121281312814SJM International, Inc. Wholly Owned Legal Entities (Directly and Indirectly):12815- ------------------------------------------------------------------------------1281612817o St. Jude Medical Puerto Rico, Inc. - Caguas, Puerto Rico (Delaware12818corporation)12819- St. Jude Medical Delaware Holding LLC (Delaware limited liability12820company) (wholly owned subsidiary of St. Jude Medical Puerto12821Rico, Inc.)12822o St. Jude Medical Holland Finance C.V. (Netherlands limited partnership)12823(ownership of St. Jude Medical Holland Finance C.V. is shared by SJM12824International, Inc., St. Jude Medical Delaware Holding LLC, and the general12825partner, St. Jude Medical Puerto Rico, Inc.)12826- St. Jude Medical Luxembourg S.a r.l. (Luxembourg corporation)12827(wholly owned subsidiary of St. Jude Medical Holland Finance12828C.V.)12829- St. Jude Medical Investments B.V. (Netherlands corporation12830headquartered in Luxembourg) (wholly owned subsidiary of St.12831Jude Medical Luxembourg12832- S.a r.l.)12833- St. Jude Medical Nederland B.V. (Netherlands12834corporation) (wholly owned subsidiary of St. Jude12835Medical Investments B.V.)12836- Telectronics B.V. (Netherlands corporation)12837(wholly owned subsidiary of St. Jude Medical12838Nederland B.V.)12839- St. Jude Medical Enterprise AB (Swedish corporation12840headquartered in Luxembourg) (wholly owned subsidiary12841of St. Jude Medical Investments B.V.)12842- St. Jude Medical Puerto Rico B.V. (Netherlands12843corporation) (wholly owned subsidiary of St. Jude12844Medical Enterprise AB)12845- Puerto Rico branch of St. Jude Medical12846Puerto Rico B.V.12847- St. Jude Medical Coordination Center (Belgium12848branch of St. Jude Medical Enterprise AB)12849- St. Jude Medical AB (Swedish corporation) (wholly12850owned subsidiary of St. Jude Medical12851Enterprise AB)12852- St. Jude Medical Holdings B.V. (Netherlands12853corporation) (wholly owned subsidiary of St. Jude12854Medical Investments B.V.)12855- Getz Bros. Co. Ltd. (Japanese corporation)12856(wholly owned subsidiary of St. Jude Medical12857Holdings B.V.)12858o St. Jude Medical Sweden AB (Swedish corporation)12859o St. Jude Medical Danmark A/S (Danish corporation)12860o St. Jude Medical (Portugal) - Distribuicao de Produtos Medicos, Lda.12861(Portuguese corporation)12862o St. Jude Medical Export Ges.m.b.H. (Austrian corporation)12863o St. Jude Medical Medizintechnik Ges.m.b.H. (Austrian corporation)12864o St. Jude Medical Italia S.p.A. (Italian corporation)12865o N.V. St. Jude Medical Belgium, S.A. (Belgian corporation)12866o St. Jude Medical Espana, S.A. (Spanish corporation)12867o St. Jude Medical France S.A.S. (French corporation)12868o St. Jude Medical Finland O/y (Finnish corporation)12869o St. Jude Medical Sp.zo.o. (Polish corporation)12870o St. Jude Medical GmbH (German corporation)12871o St. Jude Medical Kft (Hungarian corporation)12872o St. Jude Medical UK Limited (United Kingdom corporation)12873o St. Jude Medical AG (Swiss corporation)12874</TEXT>12875</DOCUMENT>12876<DOCUMENT>12877<TYPE>EX-2312878<SEQUENCE>712879<FILENAME>stjude051052_ex23.txt12880<TEXT>128811288212883EXHIBIT 231288412885CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM1288612887We consent to the incorporation by reference in this Annual Report (Form 10-K)12888of St. Jude Medical, Inc. of our reports dated February 16, 2005, with respect12889to the consolidated financial statements of St. Jude Medical, Inc., St. Jude12890Medical, Inc. management's assessment of the effectiveness of internal control12891over financial reporting, and the effectiveness of internal control over12892financial reporting of St. Jude Medical, Inc., included in the 2004 Annual12893Report to Shareholders of St. Jude Medical, Inc.1289412895Our audits also included the financial statement schedule of St. Jude Medical,12896Inc. listed in Item 15(a). This schedule is the responsibility of St. Jude12897Medical, Inc.'s management. Our responsibility is to express an opinion based on12898our audits. In our opinion, the financial statement schedule referred to above,12899when considered in relation to the basic financial statements taken as a whole,12900presents fairly in all material respects the information set forth therein.1290112902We also consent to the incorporation by reference in the Registration Statement12903No. 33-9262, Registration Statement No. 33-41459, Registration Statement No.1290433-48502, Registration Statement No. 33-54435, Registration Statement No.12905333-42945, Registration Statement No. 333-42658, Registration Statement No.12906333-42668 and Registration Statement No. 333-96697 on Form S-8 of St. Jude12907Medical, Inc. of our reports dated February 16, 2005, with respect to the12908consolidated financial statements and schedule of St. Jude Medical, Inc., St.12909Jude Medical, Inc. management's assessment of the effectiveness of internal12910control over financial reporting, and the effectiveness of internal control over12911financial reporting of St. Jude Medical, Inc., included and incorporated by12912reference in this Annual Report (Form 10-K) for the year ended December 31,129132004.129141291512916/s/ Ernst & Young LLP12917Minneapolis, MN12918March 8, 20051291912920</TEXT>12921</DOCUMENT>12922<DOCUMENT>12923<TYPE>EX-2412924<SEQUENCE>812925<FILENAME>stjude051052_ex24.txt12926<TEXT>1292712928EXHIBIT 241292912930POWER OF ATTORNEY1293112932KNOW ALL BY THESE PRESENTS, that each person whose signature appears below12933constitutes and appoints Daniel J. Starks, John C. Heinmiller and Kevin T.12934O'Malley, each with full power to act without the other, his or her true and12935lawful attorney-in-fact and agent with full power of substitution, for him or12936her and in his or her name, place and stead, in any and all capacities, to sign12937the Annual Report on Form 10-K of St. Jude Medical, Inc. for the fiscal year12938ended December 31, 2004, and any or all amendments to said Annual Report, and to12939file the same, with all exhibits thereto, and other documents in connection12940therewith, with the Securities and Exchange Commission, and to file the same12941with such other authorities as necessary, granting unto each such12942attorney-in-fact and agent full power and authority to do and perform each and12943every act and thing requisite and necessary to be done in and about the12944premises, as fully to all intents and purposes as he or she might or could do in12945person, hereby ratifying and confirming all that each such attorney-in-fact and12946agent, or his substitute, may lawfully do or cause to be done by virtue hereof.1294712948IN WITNESS WHEREOF, this Power of Attorney has been signed on this 11th day of12949March, 2005, by the following persons.1295012951/s/ DANIEL J. STARKS /s/ MICHAEL A. ROCCA12952- --------------------------------- ---------------------------------12953Daniel J. Starks Michael A. Rocca12954Chairman, President and Director12955Chief Executive Officer12956(Principal Executive Officer)1295712958/s/ JOHN C. HEINMILLER /s/ DAVID A. THOMPSON12959- --------------------------------- ---------------------------------12960John C. Heinmiller David A. Thompson12961Executive Vice President and Director12962Chief Financial Officer12963(Principal Financial and12964Accounting Officer)1296512966/s/ RICHARD R. DEVENUTI12967- --------------------------------- ---------------------------------12968Richard R. Devenuti Stefan K. Widensohler12969Director Director1297012971/s/ STUART M. ESSIG /s/ WENDY L. YARNO12972- --------------------------------- ---------------------------------12973Stuart M. Essig Wendy L. Yarno12974Director Director1297512976/s/ THOMAS H. GARRETT III /s/ FRANK C-P YIN12977- --------------------------------- ---------------------------------12978Thomas H. Garrett III Frank C-P Yin12979Director Director129801298112982129831298412985</TEXT>12986</DOCUMENT>12987<DOCUMENT>12988<TYPE>EX-31.112989<SEQUENCE>912990<FILENAME>stjude051052_ex31-1.txt12991<TEXT>1299212993EXHIBIT 31.11299412995CERTIFICATION PURSUANT TO SECTION 30212996OF THE SARBANES-OXLEY ACT OF 20021299712998I, Daniel J. Starks, certify that:12999130001. I have reviewed this annual report on Form 10-K of St. Jude Medical,13001Inc.;13002130032. Based on my knowledge, this report does not contain any untrue13004statement of a material fact or omit to state a material fact13005necessary to make the statements made, in light of the circumstances13006under which such statements were made, not misleading with respect to13007the period covered by this report;13008130093. Based on my knowledge, the financial statements, and other financial13010information included in this report, fairly present in all material13011respects the financial condition, results of operations and cash flows13012of the registrant as of, and for, the periods presented in this13013report;13014130154. The registrant's other certifying officer and I are responsible for13016establishing and maintaining disclosure controls and procedures (as13017defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal13018control over financial reporting (as defined in Exchange Act Rules1301913a-15(f) and 15d - 15(f) for the registrant and have:1302013021a) Designed such disclosure controls and procedures, or caused13022such disclosure controls and procedures to be designed under13023our supervision, to ensure that material information13024relating to the registrant, including its consolidated13025subsidiaries, is made known to us by others within those13026entities, particularly during the period in which this13027report is being prepared;1302813029b) designed such internal control over financial reporting, or13030caused such internal control over financial reporting to be13031designed under our supervision, to provide reasonable13032assurance regarding the reliability of financial reporting13033and the preparation of financial statements for external13034purposes in accordance with generally accepted accounting13035principles;1303613037c) Evaluated the effectiveness of the registrant's disclosure13038controls and procedures and presented in this report our13039conclusions about the effectiveness of the disclosure13040controls and procedures, as of the end of the period covered13041by this report based on such evaluation; and1304213043d) Disclosed in this report any change in the registrant's13044internal control over financial reporting that occurred13045during the registrant's most recent fiscal quarter (the13046registrant's fourth fiscal quarter in the case of an annual13047report) that has materially affected, or is reasonably13048likely to materially affect, the registrant's internal13049control over financial reporting; and13050130515. The registrant's other certifying officer and I have disclosed, based13052on our most recent evaluation of internal controls over financial13053reporting, to the registrant's auditors and the audit committee of the13054registrant's board of directors (or persons performing the equivalent13055functions):1305613057a) All significant deficiencies and material weaknesses in the13058design or operation of internal control over financial13059reporting which are reasonably likely to adversely affect13060the registrant's ability to record, process, summarize and13061report financial information; and1306213063b) Any fraud, whether or not material, that involves management13064or other employees who have a significant role in the13065registrant's internal control over financial reporting.1306613067Date: March 11, 20051306813069/s/ DANIEL J. STARKS13070- -----------------------------------------------13071Daniel J. Starks13072Chairman, President and Chief Executive Officer13073130741307513076</TEXT>13077</DOCUMENT>13078<DOCUMENT>13079<TYPE>EX-31.213080<SEQUENCE>1013081<FILENAME>stjude051052_ex31-2.txt13082<TEXT>1308313084EXHIBIT 31.21308513086CERTIFICATION PURSUANT TO SECTION 30213087OF THE SARBANES-OXLEY ACT OF 20021308813089I, John C. Heinmiller, certify that:13090130911. I have reviewed this annual report on Form 10-K of St. Jude Medical,13092Inc.;13093130942. Based on my knowledge, this report does not contain any untrue13095statement of a material fact or omit to state a material fact13096necessary to make the statements made, in light of the circumstances13097under which such statements were made, not misleading with respect to13098the period covered by this report;13099131003. Based on my knowledge, the financial statements, and other financial13101information included in this report, fairly present in all material13102respects the financial condition, results of operations and cash flows13103of the registrant as of, and for, the periods presented in this13104report;13105131064. The registrant's other certifying officer and I are responsible for13107establishing and maintaining disclosure controls and procedures (as13108defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal13109control over financial reporting (as defined in Exchange Act Rules1311013a-15(f) and 15d - 15(f) for the registrant and have:1311113112a) Designed such disclosure controls and procedures, or caused13113such disclosure controls and procedures to be designed under13114our supervision, to ensure that material information13115relating to the registrant, including its consolidated13116subsidiaries, is made known to us by others within those13117entities, particularly during the period in which this13118report is being prepared;1311913120b) designed such internal control over financial reporting, or13121caused such internal control over financial reporting to be13122designed under our supervision, to provide reasonable13123assurance regarding the reliability of financial reporting13124and the preparation of financial statements for external13125purposes in accordance with generally accepted accounting13126principles;1312713128c) Evaluated the effectiveness of the registrant's disclosure13129controls and procedures and presented in this report our13130conclusions about the effectiveness of the disclosure13131controls and procedures, as of the end of the period covered13132by this report based on such evaluation; and1313313134d) Disclosed in this report any change in the registrant's13135internal control over financial reporting that occurred13136during the registrant's most recent fiscal quarter (the13137registrant's fourth fiscal quarter in the case of an annual13138report) that has materially affected, or is reasonably13139likely to materially affect, the registrant's internal13140control over financial reporting; and13141131425. The registrant's other certifying officer and I have disclosed, based13143on our most recent evaluation of internal control over financial13144reporting, to the registrant's auditors and the audit committee of the13145registrant's board of directors (or persons performing the equivalent13146functions):1314713148a) All significant deficiencies and material weaknesses in the13149design or operation of internal control over financial13150reporting which are reasonably likely to adversely affect13151the registrant's ability to record, process, summarize and13152report financial information; and1315313154b) Any fraud, whether or not material, that involves management13155or other employees who have a significant role in the13156registrant's internal control over financial reporting.1315713158Date: March 11, 20051315913160/s/ JOHN C. HEINMILLER13161- ----------------------------------------------------13162John C. Heinmiller13163Executive Vice President and Chief Financial Officer131641316513166131671316813169131701317113172</TEXT>13173</DOCUMENT>13174<DOCUMENT>13175<TYPE>EX-32.113176<SEQUENCE>1113177<FILENAME>stjude051052_ex32-1.txt13178<TEXT>131791318013181EXHIBIT 32.1131821318313184CERTIFICATION PURSUANT TO13185SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002131861318713188In connection with the Annual Report of St. Jude Medical, Inc. (the "Company")13189on Form 10-K for the period ended December 31, 2004 as filed with the Securities13190and Exchange Commission (the "Report"), I, Daniel J. Starks, Chief Executive13191Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted13192pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:13193131941. The Report fully complies with the requirements of Section 13(a) or1319515(d) of the Securities Exchange Act of 1934; and13196131972. The information contained in the Report fairly presents, in all13198material respects, the financial condition and results of operations13199of the Company.132001320113202/s/ DANIEL J. STARKS13203-------------------------------------13204Daniel J. Starks13205Chairman, President and13206Chief Executive Officer13207March 11, 2005132081320913210</TEXT>13211</DOCUMENT>13212<DOCUMENT>13213<TYPE>EX-32.213214<SEQUENCE>1213215<FILENAME>stjude051052_ex32-2.txt13216<TEXT>132171321813219EXHIBIT 32.213220132211322213223CERTIFICATION PURSUANT TO13224SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002132251322613227In connection with the Annual Report of St. Jude Medical, Inc. (the "Company")13228on Form 10-K for the period ended December 31, 2004 as filed with the Securities13229and Exchange Commission (the "Report"), I, John C. Heinmiller, Chief Financial13230Officer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted13231pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:13232132331. The Report fully complies with the requirements of Section 13(a) or1323415(d) of the Securities Exchange Act of 1934; and13235132362. The information contained in the Report fairly presents, in all13237material respects, the financial condition and results of operations13238of the Company.13239132401324113242/s/ JOHN C. HEINMILLER13243--------------------------------------13244John C. Heinmiller13245Executive Vice President and13246Chief Financial Officer13247March 11, 200513248</TEXT>13249</DOCUMENT>13250</SEC-DOCUMENT>13251-----END PRIVACY-ENHANCED MESSAGE-----132521325313254